Iran's economy has passed the first half of 1405 in such a way that two key economic indicators present a different yet related picture of the intensifying pressures on the economic situation. The point-to-point inflation rate in Shahrivar reached 89.8 percent, while the annual inflation reached 73.6 percent, whereas economic growth in the first quarter of the year decreased to a negative 10.1 percent.
High Economic Growth and Inflation
Mohammad Taghi Fayyazi, a macroeconomic expert, believes that the upward trend of inflation began in Azar 1404 and is intensifying again after the currency shock and the removal of the preferential currency. He notes that monthly inflation, after an increase in Dey and Bahman, temporarily decreased but reached 4.2 percent in Shahrivar, showing signs of a return to rising prices.
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Fayyazi emphasizes that the point-to-point inflation index has increased from 52.6 percent in Azar 1404 to 89.8 percent in Shahrivar 1405, indicating a change of 37.2 percentage points. Additionally, the annual inflation has risen from 42.2 percent to 73.6 percent during the same period. He identifies the increase in the exchange rate as one of the influential factors in increasing inflationary pressures, stating that the price of the dollar has risen from less than 180,000 tomans to over 256,000 tomans within a period of 40 to 45 days.
Decline in Trade and Damage to Infrastructure
According to this expert, inflationary pressures do not solely stem from the exchange rate but also from the decline in foreign trade, which has impacted the economy. In the first quarter of the year, exports of goods and services decreased by 35.7 percent, and imports fell by 14.8 percent. He believes that the continuation of this trend may exert more pressure on prices and economic activities.
The situation in the economic growth sector is also far from desirable. The overall economic growth in the first quarter is reported at negative 10.1 percent, and growth excluding oil is negative 4.6 percent. Additionally, oil and gas extraction has faced a 26 percent decline, and the growth of the natural gas sector has also been negative 21 percent. Fayyazi attributes part of this decline to damage inflicted on infrastructure and believes that the effects of infrastructural destruction may persist beyond a short-term shock.
The decline in foreign trade is not the only cause for concern at present. Gross fixed capital formation has also decreased by 8.4 percent, which Fayyazi states has been a continuing trend in recent years. He says that even if conditions return to normal and sanctions are lifted, the reduction in investment and damage to infrastructure may delay a return to sustainable growth for years.
Fayyazi also believes that the agricultural sector has experienced positive growth due to favorable rainfall conditions, but the share of this sector is insufficient to compensate for the decline in other sectors. He predicts that Iran's economy will face significant negative growth by the end of the year, estimating the growth rate at around negative 8 percent.
This expert ultimately emphasizes that both inflationary and recessionary trends are simultaneously taking shape. He acknowledges that Iran has previously experienced severe negative growth, but the simultaneous occurrence of significant negative growth with very high inflation in recent decades is unprecedented. He considers the current situation a result of the severe combination of rising prices, declining production, falling foreign trade, reduced investment, and damage to infrastructure.
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