Country Report Iran April 2009

Outlook for 2009-10

• The president, Mahmoud Ahmadinejad, will continue to enjoy the support of the supreme leader, Ayatollah Ali Khamenei. Criticism over his handling of the economy, however, may damage his re-election prospects in June 2009.
• The Economist Intelligence Unit does not expect Iran's nuclear activities to lead to war with the US in 2009-10. We believe that the new US government may open direct talks with Iran, but only after Iran's presidential election.
• The hydrocarbons industry, which provides over 80% of government revenue, will continue to suffer from insufficient investment, as foreign companies remain, in effect, excluded from the country and as oil revenue plummets.
• We have lowered Iran's real GDP forecast to just 0.5% in fiscal year 2009/10 (March 21st-March 20th), as a result of the marked slowdown in the global economy. We expect real GDP growth to recover to 2.9% in 2010/11.
• Average consumer price inflation is expected to decline strongly over the outlook period, from 25.5% in 2008 to 19.1% in 2009 and 16.5% in 2010, owing to a sharp drop in international oil and non-oil commodity prices.
• The sharp decline in international oil prices in 2009 will have a severe impact on the current account, which we forecast will slip into a deficit of 3.8% of GDP. The deficit will narrow to around 0.5% of GDP in 2010.

Monthly review

• The supreme leader has responded to an overture from the US president, Barack Obama, by saying that Iran would consider changing its international approach if the US changed its policies too.
• Although US and Iranian officials have met over the conflict in Afghanistan, an improvement in relations between the two faces significant obstacles, not least over the Islamic Republic's ongoing nuclear programme.
• Mr Ahmadinejad is facing opposition not just from his reformist adversaries, but also from fellow conservatives ahead of the presidential election in June.
• The Economist Intelligence Unit's 2008 democracy index ranks Iran 145th out of 167 countries, putting it among the bottom six states in the Middle East.
• Tensions between the president and parliament have increased following the latter's rejection of certain elements of the 2009/10 budget.
• Despite falling commodity prices, latest data from Iran shows inflation has increased to 25.9% in the month ending February 18th 2009.
• Although the president has inaugurated phases 9 and 10 of the massive South Pars gasfield, uncertainty remains over the development of a number of other phases.

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22