Iran Business Forecast Report Q2 2009

Publication Date	February 2009
Publisher	Business Monitor
Product Type	Report
Pages	66
ISBN Number	not applicable
Product Code	BMI03424

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Tough Times Ahead Iran's relative international isolation will not provide it shelter from external macroeconomic ructions over the coming years. Global economic growth will slow dramatically in 2009, weighing on oil prices well into the medium term. This will consequently present serious economic and political challenges for the world's fourth largest oil producer. We see Iran's real GDP growth falling to its lowest level for a decade, though we expect it to avoid an outright contraction. Unlike in other countries across the globe, the government has limited scope to employ fiscal stimuli in order to prop up growth as it failed to sustain surpluses during the oil boom. June's presidential elections will take place amid the backdrop of slowing domestic growth and could become, in effect, a referendum on President Mahmoud Ahmadinejad's economic management.

Although the official candidate list for the elections is yet to be finalised, we expect President Mahmoud Ahmadinejad to seek re-election, and see the conservative major of Tehran, Mohammad-Baqer Qalibaf, and former president Mohammad Khatami as his main challengers. The defining issue of the election is likely to be the state of the domestic economy. Internationally, newly inaugurated US President Barack Obama is unlikely to significantly soften his country's stance towards Iran as long as the US harbours suspicions over the Islamic Republic's nuclear programme.

The deteriorating global economic outlook will weigh on oil prices well into the medium term, which will consequently impact Iranian growth prospects. We see real GDP growth falling to 2.4% in 2009/10, before recovering somewhat the following year, with the economy set to expand at an average rate of 3.6% over the next five years. Sharply falling oil export revenues mean that we see Iran turning out a small current account deficit in 2009/10, before returning to surplus thereafter.

Considering that Tehran depends on oil sales for over 60% of its budgetary revenues, the country's fiscal outlook is particularly dire; we are expecting the central government to record sizeable budget deficits over the course of the forecast period.

The business environment continues to be adversely affected by the uncertain political backdrop and international sanctions. Indeed, the oil and gas sector is suffering from a lack of foreign direct investment and capital imports. Although inward investment from Asia is going some way towards filling the gap left by Western firms, FDI inflows remain pitifully low. That said, the awarding of a third mobile phone licence to the UAE's Emirates Telecommunications is a positive in this regard.

The US will continue to put pressure on international companies with US interests who also trade with Iran, as evinced by India's Reliance Industries' decision to halt gasoline supplies to the Islamic Republic. In addition, some areas of the business environment, especially corruption and the legal framework, require significant work.

Content

Executive Summary
- Tough Times Ahead
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Its The Economy, Stupid
- The defining issue of Junes presidential elections is likely to be the fragile state of the economy, and we see
- former president Mohammad Khatami and Tehran Mayor Mohammad-Baqer Qalibaf as President Mahmoud
- Ahmadinejads principal challengers
- TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Lower Oil Prices To Weigh On Growth
- The worsening global macroeconomic picture will keep oil prices subdued well into the medium term, which will
- in turn lead to a sharp slowdown in the Iranian economy in 2009/10, though we expect it to avoid an outright
- contraction
- TABLE: ECONOMIC ACTIVITY
- Balance of Payments
- Current Account To Slip Into Deficit In 2009
- With most of Irans export revenues coming from the oil sector, lower oil prices will negatively impact the Islamic
- Republics balance of payments outlook and we are projecting a small current account deficit of US$1.5bn in
- 2009/10
- TABLE: BALANCE OF PAYMENTS
- Fiscal Policy
- Bleak Outlook For Government Finances
- The collapse in the global oil market has severely impacted the central governments fiscal outlook, and we see
- it turning out a hefty budget deficit of 11.8% in 2009/10
- TABLE: FISCAL POLICY
- Exchange Rate Policy
- IRR: Steady Depreciation Beckons
- TABLE: EXCHANGE RATE POLICY
Chapter 3: 10-Year Forecast
- The Iranian Economy To 2018
- Sanctions To Weigh On Long-Term Growth
- We are forecasting annual real GDP growth of 3.4% by 2013/14, and 3.0% by 2018/19, on the back of slowing
- oil production growth, a long-term stabilisation in oil prices, and economic sanctions; although Irans youthful
- population and oil wealth will ensure economic expansion holds up above 3.0%
- TABLE: LONG -TERM MACROECONOMIC FORECASTS
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest and least discussed wild cards that could rear its head in 2009 is dramatic political
- upheaval in China
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009
- TABLE: Banks Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Eurozone Is Considered Home Country
- TABLE: Exposure As % of Tot al Exposure To Region
- TABLE: Banks Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- Market Orientation
- TABLE: MIDDLE EAST & AFRICA, ANNUAL FDI INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS, US$MN
- Operational Risk
Chapter 6: Key Sectors
- Defence
- TABLE: IRANS DEFENCE SECTOR ARMY SIZE (000)
- Pharmaceuticals
- TABLE: GENERICS MARKET FORECASTS, 2004-2012
Chapter 7: BMI Global Assumptions
- Global
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Economic Activity
- TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- Monetary Policy
- Commodities
- TABLE: EMERGING MARKET EXCHANGE RATES