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Iran Country Risk Reports Q2 2015

Iran Country Risk Reports Q2 2015

Core Views

Recent improvements in relations with the West bode well for the country’s economy. That said, uncertainty over the outcome of negotiations over Iran’s nuclear programme will ensure that risks to the outlook remain elevated.

Declining oil prices will force the government to cut current spending and investment in the country’s infrastructure sector in 2015, which will result in slow expansion of private consumption and fixed investment.

Downside pressure on the Iranian rial will remain prominent, and the unit will remain sensitive to developments in nuclear negotiations over the coming quarters.

Major Forecast Changes

We have revised our real GDP growth forecasts this quarter, and are projecting the economy to expand by 1.4% in 2015 and 2.2% in 2016, respectively, from 2.1% and 3.0% previously.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Foreign Policy
Nuclear Talks: Breakthrough Unlikely Following Extension
A 'permanent' agreement on Iran's nuclear programme will remain elusive following the recent extension of a deadline for a final deal to
June 30, 2015. Investment by Western companies in Iran will remain low over the coming years as operational environment risks stay
elevated.
Table : Political Over view
Table : Possible Sce nari os Over The Ne xt Two Years
Long-Term Political Outlook
Incomplete Regime Transformation By 2020s
We expect partial 'regime transformation' in Iran by the 2020s, as the ruling elite seeks to pre-empt the possibility of mass unrest.
Relations with the West will improve only modestly, and r isks of reaching a final agreement on the nuclear programme are tilted slightly
to the downside.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
2015 And 2016 Growth Forecasts Revised Downward
Real GDP growth in Iran will slow in 2015. Lower oil prices will force the government to cut spending, and a failure to reach a
breakthrough in nuclear talks will ensure that foreign investment remains low. We have revised downward our real GDP growth forecast
for the Iranian economy at 1.4% in 2015 and 2.2% in 2016, from 2.1% and 3.0% previously.
Table : Economic Acti vity
Monetary Policy
Increasing Inflation Posing Downside Risks To Nuclear Talks
Inflation in Iran will increase in 2015 as the government cuts energy and food subsid ies in a bid to reduce a widening fiscal deficit,
a result of lower oil prices. This will result in declining popularity for Rouhani, posing downside risks to nuclear talks. We project CPI
inflation to average 21.0% in FY2014/15 and 23.0% in FY2015/16.
Table : Monetary Policy
Balance Of Payments
Current Account In Deficit From 2015
Iran's current account will come in at a deficit of 1.9% of GDP in FY2015/16 – the first deficit since FY1998/99 – and remain in the red
for the rest of the decade, primarily on the back of weaker oil prices. International sanctions will continue to hinder Western investment,
while FDI from Asia and the Middle East will expand only gradually.
Table: Curent Account
Banking Sector
Slower Growth In 2015
High base effects will lead to slower growth in Iran's commercial banking sector in FY2015/16 compared to this fiscal year, while risks to
fundamental stability will remain contained. Profitability will be minimal due to the elevated non-performing loan ratio, the dominance of
highly leveraged state-owned banks and a lack of access to global financial markets as sanctions on the sector remain for the coming
two years.
Exchange Rate Policy
IRR: Pronounced Weakness In 2015 And 2016
The Iranian rial will weaken over the coming years in both regulated and street transactions, on the back of lower oil prices and a failure
to reach a breakthrough in nuclear talks. We project the unit to average IRR30,0 00/USD in 2015 and IRR 34,0 00/USD in 2016 in the
official market, from IRR25,800/USD in 2014.
Table: Exchange Rate
Table : Cure ncy Forecast
Chapter 3: 10 -Year Forecast
The Iranian Economy To 2024
Sanctions To Cloud Economic Outlook
The inability to fully exploit Iran's enormous oil and gas wealth and a challenging operational environment will lead to slow economic
growth over the next 10 years. A 'permanent' nuclear deal with the West will be elusive, contributing to significant challenges for foreign
firms willing to enter the market.
Table: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Table: Operational Risk
Availability of Labour
Table : MENA – Availability Of Lab our Ris k
Table : Top Seven Source Countries For Migra nt Workers (‘000)
Table : Lab our Force Empl oyment By Sector (‘000)
Crime Risk
Table : MENA – Cri me Ris ks
Chapter 5: Key Sectors
Autos
Table : Aut os Total Mar ket – Hist orical Data And Forecasts
Table : Pase nger Car Mar ket – Hist orical Data And Forecasts
Table : Commercial Ve hicle Mar ket – Hist orical Data And Forecasts (Ira n 2012-2018)
Agribusiness
Table: Corn Production & Consumption
Table : Barley Producti on & Consu mpti on
Table : Wheat Producti on & Consu mpti on
Table: Milk Production & Consumption
Table: Beef Production & Consumption
Table : Poultry Producti on & Consu mpti on
Other Key Sectors
Table : Oil and Gas Sector Key Indicators
Table : Phar ma Sector Key Indicators
table : Infrastructure Sector Key Indicators
Table : Telec oms Sector Key Indicators
Table : Defe nce and Security Sector Key Indicators
Table : Freig ht Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Assumptions
Table : Devel oped States , Real GDP GrowtH , %
Table : BMI VERSUS BLOOM BERG CON SENSUS REAL GDP GROWTH FORECASTS, %
Table : Emergi ng Mar kets , Real GDP Growt h, %

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