World Bank: Economy to Stabilize in 2020

January 14, 2020

The multilateral development bank forecasted that Iran’s economy would stabilize in 2020 after two years of recession. The bank predicted the impact of U.S. sanctions would “taper somewhat” as growth among oil exporters was expected increase in 2020. The risk of U.S.-Iran geopolitical tensions led the World Bank to temper its expectation of Iranian economic recovery. Iran's gross domestic product was expected to start growing again in 2021, by one percent. The following are excerpts from the report. 

 

Impact of U.S. sanctions

“In Iran, sanctions have been weighing significantly on growth…Growth in the region is projected to accelerate in 2020 to 2.4 percent, supported by higher investment, promoted by both infrastructure initiatives and stronger business climates. The forecasted stabilization in Iran assumes that the impact of sanctions tapers somewhat.”

“In the large oil-exporting economies, oil production cuts, weak global economic momentum, and U.S. sanctions on Iran weighed on activity, despite signs of non-oil activity improvement.”

Iran’s economic growth

“Among oil exporters, growth is expected to pick up to 2 percent in 2020. Infrastructure investment, along with an improved regulatory environment backed by business climate reforms, are expected to support activity in the GCC. Iran’s economy is expected to stagnate at a lower base, as the initial intensive impact of sanctions on oil production and exports is assumed to taper somewhat.”

Oil production

“[Oil] production has also been constrained in the Islamic Republic of Iran and the República Bolivariana de Venezuela by a variety of geopolitical and domestic factors. However, these pressures were offset by weakening oil demand, as exemplified by downward revisions to demand projections.”

“Geopolitical factors related to U.S.-Iran tensions, as well as the recent attack on Saudi Aramco’s oil facilities, have raised volatility in oil prices. This volatility may rise further. A sharp rise in oil price volatility may complicate or stall fiscal adjustments in both oil exporters and importers. It could also set back investment programs in oil exporters and cause difficulties for subsidy reforms in oil importers by increasing the uncertainty associated with future revenue and income streams.”

Inflation

“In Iran, however, inflation rose sharply to more than 50 percent in mid-2019, partly reflecting the earlier depreciation of the rial in the parallel market, although inflation has subsided in late 2019 to below 30 percent.”