Roubini Report: Out of the Red, Slowly Growing

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With the November 24 deadline looming for the Iran nuclear negotiations in Vienna, we reassess the state of the Iranian economy and its near-term outlook in light of recent data, with particular attention to the value of previous sanctions relief.

Bottom line:

Iranian GDP data met our expectation that the economy bottomed out in the 2013/14 fiscal year (FY) and is in the midst of a moderate recovery.2 Inflation has more than halved to 14.7% in August, as a result of the de-escalation of sanctions and better fiscal and monetary policy by the Rouhani government, which benefited from less economic pressure. Despite weaker oil prices, the average pace of growth should accelerate through FY 2014/15, as recovery in the industrial sector and labor markets slowly translates into stronger domestic demand. However, the economy should not be considered healthy. Iran’s production will remain below potential, constrained by the need for structural reform.

Risks to our view/Future outlook:

We see upside risks to our growth forecast of 2.5% in FY 2014/15. Moreover, continued uncertainty over nuclear negotiations will keep domestic and international investors on the sidelines in the coming quarters, as long-term growth depends heavily on the sanctions trajectory