More dire predictions of economic collapse in Iran from the Wall Street Journal
An angry and dystopian op-ed about Iran, published in the Wall Street Journal on March 1, committed several errors in judging Iran’s economic performance that would fail my undergraduates economic students. They are taught to never fall prey to the vagaries of exchange rate fluctuations in developing countries when making international comparisons of living standards. For example, if the value of a country’s currency drops suddenly, its GDP measured in US dollars doesn’t collapse immediately — it may even go up. Since the 1960s, millions of dollars has gone into research to make data available for international comparisons. These are widely available on the World Bank data bank site and from the Penn World Tables, where the International Comparison Project originated. I have previously written about international comparisons of living standards here and here in this blog and elsewhere. There is therefore no more excuse for picking bad data from the internet to write bad op-eds. (more…)
Rising employment since Trump’s sanctions may not last
Earlier this month the Statistical Center of Iran (SCI) released the results of the latest quarterly labor force survey, which show employment continued to expand during fall 2019 (the third quarter of the Iranian year 1398). The data question the dire accounts of Iran’s economy that have appeared in western media, a point that I raised in a recent post in Project Syndicate and again this week in ResponsibleStatecraft.org (which has replaced Lobelog.com). However, there are reasons to believe that this positive trend is short-lived, that as excess capacity is used up and new investments fail to materialize, the economy takes a turn for the worse. Below, after presenting the new data, I discuss several challenges to employment if sanctions continue. Some of these challenges can be overcome by domestic reform, such as banking reform to enable the flow of credit to producers, but others are not under the control of the government, such as moving money internationally. (more…)
Rising employment casts doubt on IMF’s grim forecast for Iran’s economy
In October, the IMF downgraded its forecast of Iran’s economic growth for 2019 from -6 to -9.5 percent. The adjustment brought the IMF’s assessment of Iran’s economic performance closer to that of the World Bank (-8.7 percent) and is revising opinion regarding the ineffectiveness of sanctions in forcing Iran to renegotiate the 2015 nuclear deal. It has strengthened the hand of Iran foes who argue that sanctions are about to bear fruit and urge the Trump administration to stay the course and ignore appeals from Europeans to ease pressure on Iran.
The Financial Times, quoting an unnamed Iranian economist, added alarm to the downgrading by suggesting that Iran’s situation may be worse than it was during the Iran-Iraq war or the Anglo-Soviet occupation of Iran during World War 2. The idea that life in Iran is anything like the 1940s or the 1980s is nonsense, and the FT reporter who files her reports from Tehran can (but did not) attest to that. It is easy to dismiss this comparison as silly, but the dire predictions of sharp contraction by IMF and the World Bank for the year should be taken seriously. And by seriously I mean to ask why they are at odds with new employment data from Iran. (more…)
Good news for Iran from the inflation front
Good economic news greets President Rouhani as he arrives in New York for the UN General Assembly this week: a declining trend of inflation. According to the latest consumer price index data published by the Statistical Center of Iran, during the Iranian month of Shahrivar (August 21-September20, 2019) inflation reached its lowest level since Trump’s assault on Iran’s economy began 18 months ago: the CPI increased at an annual rate of just 6.1 percent. When Trump reimposed sanctions in May 2018, inflation was quite low: 2.7 percent annually in March 2018 and rose to 126.7 percent in October. It has declined more or less continuously from that peak since (see graph of the 3-month moving average below). (more…)
Can Iran’s economy restructure to minimize the impact of sanctions?
In a post published on Lobelog.com today, I ask if Iran’s economy is sliding. Available data do not allow me to answer this question one way or the other, but they do undermine the claim of doomsayers that the economy is on the verge of collapse.
A lot rides on the answer to this question, however, and I do not have more to say on it here. There is no doubt that in the standoff between Iran and the US, time is on the US side. They can wait this out for a very long time, at least as long as Iran keeps to its promise not to develop nuclear weapons. The question is then how quickly and to what degree will Iran’s economic situation deteriorate in the next year or so. If the economic clock for Iran runs out fast, we should expect it to resort to asymmetric responses and further instability in the Persian Gulf. If, as the data hints, the economy is stabilizing, albeit at a lower level, Iran could decide to use the sanction years (how long?) to restructure its economy away from oil and toward domestic production.
The reforms needed to do so range from reform of education and banking systems to better management of the exchange rate. If the government is working on a strategy to achieve all this, I do not know. But, when the big economic news from Iran is about kicking 800,000 rich people off the cash transfer roll, I have doubts. To be bust saving about $50 million a year when the economy is losing 5-10 percentage point in lost economic growth (worth $50 billion) a year, does not make sense.
Is Iran’s inflation rising?
The most recent report on consumer prices (link in Persian) published by the Statistical Center of Iran (SCI) last week shows that prices rose faster in Tir 1398 (June 21 to July 20, 2019) than they did in the preceding two months. Low inflation rates during Ordibehesht (roughly, May) and Khordad (June), 19 percent and 10 percent (measured annually), seemed to signal that the cost push inflation of 2018 may be working its way out of the system. But, the sharp increase in Tir prices, 38 percent annually, three times as fast as the previous month, may suggest otherwise. The dollar in the free market responded quickly, jumping above 120,000 rials per dollar. (more…)
A note on measuring living standards
A few weeks ago, in this blog and in opinion pieces (here, here and here), I argued that during the three decades since the end of the war with Iraq (1988), Iran’s economic growth exceeded that of Turkey, such that by 2012, when US sanctions intensified, living standards in the two countries were very similar. My analysis, which surprised some and angered others, is because of the particular data I used to measure GDP per capita (which I also refer to as the living standard). GDP comparison is not rocket science but most journalists (and even many economists) often get it wrong. So, in this post I try to explain why it is important that we use data specifically intended for such comparisons.
Rouhani’s new budget cuts back on expenditures, big time
If the government of Hassan Rouhani has a plan for fighting the downward trend in Iran’s economy, the one started with the US withdrawal from the nuclear deal, it is not to be found in its proposed budget for the Iranian year 1398 (March 21, 2019 to March 20, 2020). The budget, which may be modified by Iran’s parliament in the next few weeks, is proposing serious cuts to expenditures. Blaming shrinking revenues from oil, the government has decided to deal with the shock of the Trump sanctions and fleeing private investment by reducing its own expenditures. Not a surprise from a government that has made fighting inflation its top priority and jobs creation the purview of the private sector. This is reasonable logic in normal time, but not when factories are cutting back on production and employment or shutting down altogether. (more…)
Is Iran’s inflation really slowing?
In my last blog post I suggested that Iran’s inflation may be slowing down, and the latest consumer price data from the Statistical Center of Iran (SCI) suggest that this may indeed be the case. The Consumer Price Index (CPI) published by SCI rose by 2.6 percent for the month of Azar (November 21 to December 20), an annual rate of increase of 26 percent. This is high by world standards but low by the standards of this summer, when in August the rate shot up to 127 percent (see Figure 1). More importantly, it is about the same as the month before, which is why it is safe to say that calmer — not better — times are ahead. Unfortunately, the reporting of prices has created confusion, some numbers showing inflation slowing while headlines say the opposite. (more…)
Has Iran’s inflation peaked?
Last June, I wrote on this blog about the return of inflation in Iran, when inflation had jumped from an annual rate of 18 percent in April 2018 to 34 percent in May. In more recent months, inflation has been running at an annual rate of 78 percent per month, twice the rate in May. But, for the past two months, October and November, the monthly rate has declined. Is this a sign that the current phase of high inflation, which started with the collapse of the rial, is about to end? Containing inflation is critical if Iran is to convince its citizens that economic stability is returning and that the news of hyperinflation and economic collapse are exaggerated. (more…)
Tyranny of numbers 
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