Oil Remains Locomotive of Growth
Aug, 25, 2016- Trade data released on Tuesday did little to allay concerns about the stagnating industrial sector.
Market observers have been concerned about an ongoing slowdown in industrial activity. The lackluster state of Iran’s wide array of industries is a drag on the economy and hammering expectations of future growth. Only the petroleum industry is in better shape and growing.Imports of machinery, auto parts and basic food have continued their declining trend from last year. Imports during the first five months of the year (started March 20) dropped 2.58% to $16.7 billion, as per data released by the Islamic Republic of Iran Custom Administration.
While the drop in food imports is the result of growth in agricultural output during the past year; fewer imports of machinery and cars point to low industrial investment and the lack of consumer demand.
While agricultural output is rising and services are limping, manufacturers continue their struggle for survival through low consumer spending and the credit crunch.
Exports excluding crude oil, outstripped imports during the five-month period, rising 10.22% to $19.1 billion. The petroleum industry took the top spot. Petroleum products, including natural gas and petrochemicals, made up two-thirds of what IRICA classifies as ‘non-oil’ exports. Only $8.3 billion of Iranian exports were non-petroleum goods during the five-month period.
Two weeks ago markets disregarded first quarter growth figures showing a 4.4% expansion of GDP and continued their decline. A closer inspection of the 8.8% expansion in industrial output showed the rise originated from a solid 57% expansion in the petroleum industry alone.
Three investment managers told the Financial Tribune after the data release that the petroleum industry’s recovery was a welcome result of sanctions relief but reconfirmed that other industries are struggling.
Iran negotiated last year a deal with the six world powers (Britain, France, Germany, China, Russia and the United States) to lift the crippling sanctions on its economy in exchange for limiting its nuclear energy program. Sanctions were lifted in January as Iran’s compliance with the deal was confirmed by the International Atomic Energy Agency.
It needs mention that the winner of the period’s trade is the Central Bank of Iran. The $2.4 billion trade surplus has helped keep the rial relatively steady against the dollar in open markets. This has allowed the CBI to reduce the gap between market exchange rates and the stronger rates the CBI offers by weakening the rial’s official exchange rate. The bank’s governor Valiollah Seif had promised to unify the foreign exchange rate regime within six months from the removal of the international sanctions.