GDP growth back on track

Although economic growth rate of Iran jumped from -6.8% in 2012 to -3.4% in the first 3 quarters of 2013, the latest statistics released by the Central Bank of Iran on economic growth trend in the third quarter of 2013 suggest that the declining growth already started in 2011, and with the sudden fall in oil revenue continued to drop by the end of fall 2013.
Upon its election, the new government has geared up efforts to reverse the negative trend as the first priority. Having succeeded to slow down the inflation rate in the first stage, the government has now shifted efforts to combat recession. The said objective is now highlighted more frequently in the remarks of various government officials. However, it seems that ending recession is closely bound to making progress in nuclear talks and foreign relations. Speaking at a recent interview with Wall Street Journal reporter, CBI governor predicted that "Iranian economy will grow faster and maximum by 6% if an agreement is reached with the Western powers over the nuclear program." In the meantime, winning access to $100 billion of its oil revenues frozen abroad due to sanctions will help the Iranian economy experience a quick jump by completing pending development projects.

Adverse impacts of sanctions on recession and oil sector
The issue can be looked at from different angles. First of all, as their main target, the international sanctions were directed at the Iranian oil sector resulting in decline in production as well as exports. The Iranian oil sector accounts for 17% of the economy and a rapid recovery in this sector can significantly boost economic growth. For instance, the sanctions reduced oil exports from 2 million barrels per day (mbpd) to 1.2 mbpd. The recent reports indicate that Iranian crude oil export has jumped to 1.5 mbpd with oil minister predicting 4-mbpd production three months after the removal of all sanctions. Amid different speculations about the oil production capacity of Iran, some foreign sources have estimated the capacity at 2.8 to 3.5 mbpd. The statistics indicate that negative oil sector growth has reversed in the spring 2014. It is expected that upon the termination of sanctions, oil sector grow by 20%. Such growth can push up GDP by 3.5 units per percentage.

Positive growth in industry and mines
The same trend in oil sector holds true for industry and mines sector. However, as production volume in this sector has already slid to record low in the past two years, further negative growth and decline in production are unlikely in the current year. Restoring transactions with other countries can push the growth rate in this sector above 10%. It should be noted that some industries have experienced relative growth in spring 2014; for instance, car production has increased by 80%. In the absence of any reports indicating any critical situation in other industries (except for construction sector grappling with relative recession), it can be inferred that the sector has grown positively in the first 3 months of the Iranian year, starting 21 March.

50% share yet negative growth rate of service sector
Service sector accounts for more than 50% of gross domestic production which makes it the most important in comparison to other two sectors. Despite the declining growth starting as of winter 2012 reaching record low 3.9% in fall 2013, the sector has grown recently. Given its large share in GDP, in the absence of a meaningful growth in services, no significant economic growth can be expected. For instance, 3% decrease in service sector growth reduces overall economic growth by -1.5 unit points. Even if other sectors (oil, agriculture, industry and mines) grow by 10% each while service sector remains at 0%, the economic growth rate will not hit above 5%. In fact, service sector serves as a tally for other sectors and reflects their growth with some months delay.
While the country was exiting recession and reversing war-induced negative economic growth in 1987, the statistics indicated that some sectors grew much faster than others. At that time, oil sector recovered fastest and experienced positive growth as of 1986 while the entire economy showed positive improvement only as of 1988. It is worthwhile to note that apart from initial investments needed for exploration and exploitation, the oil sector, whose target market is mainly located outside the country, is not affected by domestic economic boom or recession. In 1988, as the last year of negative growth, except for oil with 8.8% growth, other sectors continued to grow negatively. In the same year, industry and mines sector witnessed a sudden fall in growth and plunged to record low, -11.3%. Growth in agriculture sector also declined for the first time since the Islamic Revolution. However, the developments in 1989 put -5.5% growth to rest and turned a new page in economy boosting the GDP to 5.9%. The significant 11.4 unit points growth happened only within one year pushing other sectors' growth at the same time. It was the year when the country experienced the highest economic growth rate since the Islamic Revolution.