Iran Business Forecast Report Q3 2009

Publication Date	May 2009
Publisher	Business Monitor
Product Type	Report
Pages	68
ISBN Number	1744-8867
Product Code	BMI03883

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Summary

Learning To Live With Low Oil Prices

Iran's relative international isolation will not provide it shelter from external macroeconomic ructions over the coming years. We expect the global economy to contract by 2.3% in 2009, contributing to a subdued global oil market well into the medium term. This will present serious economic and political challenges for the world's fourth largest oil producer. Economic growth will slow, government finances will suffer and unemployment will rise. Internationally, Iran is likely to remain a pariah state as the government shows no signs of being prepared to give up its controversial nuclear programme. Any foreign investment that Iran does manage to attract is likely to come from non- Western interests.

We see President Mahmoud Ahmadinejad as favourite to retain the office in June's presidential elections, though reformist hopeful Mir-Hossein Mousavi could provide a stern challenge. Political risk could rise as unemployment heads up in the wake of the domestic economic slowdown. Over the longer term, Iran's youthful demographics could ensure that unemployment rates remain high even after the economy stages a recovery. On the foreign policy front, Iran's nuclear programme will remain the focus of global attention, keeping relations with the West strained. Although the Islamic Republic is continuing to build up its stockpile of low enriched uranium, there is no evidence to suggest that it is developing nuclear weapons thus far. However, Tehran's plans to expand its enrichment facilities will continue to arouse suspicions in the West.

Growth will slow to 2.4% in 2009/10 as the economy adjusts to a period of lower oil prices, though we do not expect it to fall into recession. Thereafter, growth will pick up again; we see the economy expanding at an average rate of 3.6% over our five-year forecast period. With sanctions set to remain in place, FDI inflows will remain muted and the oil and gas sector will continue to suffer from chronic under-investment. Lower oil prices will contribute to the easing of inflationary pressures through 2009, but they will severely impact the central government's fiscal outlook - we expect Tehran to record sizeable budget deficits for at least the next five years, and most likely for far longer.

The business environment continues to be adversely affected by the uncertain political backdrop and international sanctions. FDI inflows remain pitifully low, although inward investment from Asia is going some way towards filling the gap left by Western firms. Indeed, state-owned Chinese companies have recently signed major oil and gas deals with Tehran. There are indications that Iran's privatisation programme is gathering pace, likely due to the dire state of public finances.

In addition, Iran is set to allow foreign banks to establish branches in the country and engage in normal banking operations for the first time since the 1979 Islamic Revolution.

Content

Executive Summary
- Learning To Live With Low Oil Prices
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Foreign Policy
- Nuclear Programme: A Refresher
- Although Iran is continuing to build up its stockpile of low enriched uranium, there is no evidence to suggest that it
- is developing nuclear weapons thus far.
- Domestic Politics
- Tough To Pick A Winner
- At this stage we see President Mahmoud Ahmadinejad as favourite to retain office in June's presidential elections,
- though there is still room for an alternative candidate to emerge victorious.
- Domestic Politics II
- Unemployment On The Way Up
- Unemployment is likely to rise in the wake of the domestic economic slowdown. Structural factors relating to Iran's
- youthful population could well mean that unemployment rates remain high even after a cyclical recovery in the economy.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- 2009 Growth In Positive Territory
- Growth will slow as the economy adjusts to a period of lower oil prices, though we not expect it to fall into recession.
- Monetary Policy
- Disinflationary Trend To Continue
- Inflation will continue to fall over the course of 2009 and we see it coming in at 10.0% y-o-y by the end of the Iranian
- year in March 2010, down from 17.8% in March 2009.
- Balance Of Payments
- Q3 BoP Statistics Confirm Our View
- In 2009/10, Iran will turn out a current account deficit for the first time in over a decade.
- Fiscal Policy
- Massive Fiscal Deficits Ahead
- Falling oil revenues, slow growth in tax receipts, and escalating expenditures will see the central government's fiscal
- deficit balloon out to over 13% of GDP in 2009-10, with deficits remaining sizeable through the forecast period.
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 p
- roduction growth, a long-term stabilisation in oil prices, and economic sanctions; although Iran's youthful population
- and oil wealth will ensure economic expansion holds up above 3.0%.
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Power
- Automotives
Chapter 7: BMI Global Assumptions
- Global Outlook
List of Tables
- Table: Iran Political Overview
- Table: ECONOMIC ACTIVITY
- Table: MONETARY POLICY
- Table: BALANCE OF PAYMENTS
- Table: FISCAL POLICY
- Table: IRAN Long-Term Macroeconomic Forecasts
- Table: LOAN-TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI Business And Operational Risk Ratings
- Table: BMI Legal Framework Ratings
- Table: MIDDLE EAST & AFRICA, ANNUAL FDI INFLOWS
- Table: BMI Trade Ratings
- Table: IRAN TOP EXPORT DESTINATIONS, US$MN
- Table: Iran's Power Sector - Historic Data And Forecasts
- Table: Iran Autos Sector - Historical Data And Forecasts
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL ASSUMPTIONS - LONG-TERM FORECASTS
- Table: Developed States, Real GDP Growth Forecast
- Table: EMERGING MARKETS, REAL GDP GROWTH FORECAST
- Table: Commodities
- Table: GLOBAL & REGIONAL REAL GDP GROWTH