Iran’s GDP in 2012 is expected to shrink by 3.5% from a positive growth of 1.2% in 2011, the Washington-based Institute of International Finance (IIF) has said in a report on the MENA region. The IIF noted that western sanctions imposed on Iran over the nuclear standoff have pushed the country into recession. Crude oil exports in 2012 have dropped sharply, the value of the Iranian rial has slumped on the free market [currently at $1=IR30,000] and the inflation rate has soared.

Government revenue from oil, which accounts to about half its total revenue, could fall by at least 40% even if crude oil prices hold at around $110/B, the IIF said. The inflation rate which was estimated at 26.5% in 2011 is expected to rise to around 50% in 2012, the IIF added. Officially the Central Bank of Iran (CBI) said its year-on-year inflation rate stood at 24.9% on 21 October, but independent economists claim that it could be double that figure (MEES, 16 November).

While Iranian government officials have initially dismissed the effects of sanctions, there is now a growing acknowledgement that they are hurting the country’s economic growth. President Mahmoud Ahmadinejad indicated last October that the government will have to rationalize its spending to deal with reduced government revenue (MEES, 12 October). A member of the Parliamentary Budget Commission Gholamreza Mesbahi Moghaddam said last month that the state budget in the next fiscal year which starts on 20 March 2013 could assume oil exports of only 1mn b/d, or about half the volume in the previous year.

The IIF also warns that deteriorating economic conditions could have serious political and social repercussions as the country prepares for its mid-2013 presidential elections.

The fall in the 2012 GDP is also projected by the IMF in its Regional Economic Outlook: Middle East and Central Asia, published in November 2012. While 2012 will see a 0.9% fall in real GDP, the IMF is projecting a small growth rate of 0.8% for 2013. Inflation on the other hand is projected at 25.2% in 2012 and 21.8% in 2013.