2012-11-15 19:46:52 - Iran Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

Despite heightened rhetoric, we do not believe Iran´s threats to close the Strait of Hormuz are credible. Any cut-off in oil export receipts would hit the economy hard, and the government would therefore be very unlikely to carry through with its threats.

The economy will remain a regional laggard as investment activity stalls following the imposition of a more stringent set of international sanctions on the regime in 2012 and 2013.

The Iranian rial will remain under fundamental downside pressure as households continue to shift their savings into dollars and gold.

The country´s subsidy reform programme is likely to have mixed results over the long term. Although it may have helped to reduce instances of absolute poverty throughout the country, it has also

 

 

undermined private consumption among higher income earners.

Major Forecast Changes

We have revised down our real GDP forecasts this quarter and are projecting the economy to contract 3.1% and 0.8% in real terms in 2012 and 2013, respectively, as private consumption and exports will remain subdued.

We have revised up our forecast for inflation, and we project consumer price inflation to average 45.0% in FY2012/13 (fiscal year commencing on March 20 2013), and 50.0% in fiscal year 2013/14, mostly as a result of the recent fall in the value of the rial.

Key Risks To Outlook

Domestic political divisions between supporters of the Supreme Leader, Ayatollah Ali Khamenei, and President Mahmoud Ahmadinejad could trigger significant tensions.

Higher global energy prices may lead to upside risk to our growth forecasts and downside risk to our fiscal deficit forecasts.

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