Includes 3 FREE quarterly updates
Core Views 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 2011 and 2012. The Iranian rial is likely to 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 budget balance forecasts this quarter and are projecting the the balance to come into deficit to the tune of 6.5% and 7.5% in FY2012/13 and FY2013/14 respectively. Key Risks To Outlook Domestic political divisions between supporters of the supreme leader, Ayatollah Ali Khamenei, and President Mahmoud Ahmadinejad will trigger tensions. Higher global energy prices may lead to upside risk to our growth forecasts and downside risk to our fiscal deficit forecasts.
Core Views 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 2011 and 2012. The Iranian rial is likely to 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 budget balance forecasts this quarter and are projecting the the balance to come into deficit to the tune of 6.5% and 7.5% in FY2012/13 and FY2013/14 respectively. Key Risks To Outlook Domestic political divisions between supporters of the supreme leader, Ayatollah Ali Khamenei, and President Mahmoud Ahmadinejad will trigger tensions. Higher global energy prices may lead to upside risk to our growth forecasts and downside risk to our fiscal deficit forecasts.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Political Risk Analysis – The Iran Nuclear Dispute
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Regime Change Likely By 2020
Although Iran's Islamic regime has proved resilient in the face of tremendous domestic and external pressure, we believe it cannot
continue indefinitely. Consequently, we expect to see regime change by 2020, either through gradual reform or a popular uprising.
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Sanctions Hindering Growth
We forecast Iran's economy contracting 1.2% and 0.3% in real terms in 2012 and 2013 respectively, mainly as a result of the imposition
of tighter international sanctions on the hydrocarbon and financial industry. As we do not see sanctions being lifted anytime soon, the
economy will grow below potential over the medium term.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Inflation Risks Triggering Protests
We forecast consumer price inflation in Iran averaging 23.5% and 22.0% y-o-y in FY2012/13 and 2013/14 respectively, up from 21.8%
in FY2011/12.
Economic Activity II
Subsidy Reform Will Be Put On Hold
Further subsidy reforms in Iran, particularly with regards to energy products, will be unlikely before presidential elections are held
in 2013. While the reforms will be implemented gradually over the coming years, we caution that the current programme of raising
domestic energy prices is likely to result in an increase in anti-government sentiment.
TABLE: INFLATION
Fiscal Policy
Budget Heading Deeper Into Deficit
We project Iran's budget deficit coming in at 6.5% and 7.5% of GDP in FY2012/13 and 2013/14 respectively, up from 4.1% in
FY2011/12. While revenues will be constrained by low hydrocarbon exports, current expenditure is set to remain elevated, as cuts to
energy subsidies will be less significant than expected.
IRAN – FISCAL POLICY
Currency Forecast
IRR: Further Depreciation Ahead
Our near-term outlook for the Iranian rial is bearish. After the currency was devalued 8.6% in February, the unit's official exchange rate
has been trading sideways within the IRR12,220/US$-IRR12,259/US$ area since.
Banking Sector
All Signs Point To A Crisis
International sanctions and a weak macroeconomic backdrop will continue to take their toll on the Iranian banking sector throughout
2012.
TABLE: EXCHANGE RATE
CHAPTER 3: 10-YEAR FORECAST
The Iran Economy To 2021
The inability of Iran to fully exploit its enormous oil and gas wealth will keep real GDP growth rates averaging 2.4% over the next
years, despite the country's economy strong potential. Iran's youthful demographics mean that private consumption and investment will
primarily drive this growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Regional Business Environment Outlook
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: MIDDLE EAST AND AFRICA – ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
CHAPTER 5: KEY SECTORS
Pharmaceuticals
TABLE: PHARMACEUTICAL SALES, 2008-2016
TABLE: PRESCRIPTION DRUG SALES, 2008-2016
TABLE: PATENTED DRUG SALES, 2008-2016
TABLE: OTC MEDICINE SALES, 2008-2016
TABLE: GENERIC DRUG SALES, 2008-2016
TABLE: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA & FORECASTS
TABLE: TELECOMS SECTOR – INTERNET – HISTORICAL DATA & FORECASTS
TABLE: TELECOMS SECTOR – MOBILE – HISTORICAL DATA & FORECASTS
TABLE: TELECOMS SECTOR – ARPU – HISTORICAL DATA & FORECASTS
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: OIL AND GAS SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TABLE: TELECOMS SECTOR KEY INDICATORS
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS
TABLE: FREIGHT KEY INDICATORS
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
The Cycle Has Turned
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST
Core Views
Major Forecast Changes
Key Risks To Outlook
CHAPTER 1: POLITICAL OUTLOOK
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Political Risk Analysis – The Iran Nuclear Dispute
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Regime Change Likely By 2020
Although Iran's Islamic regime has proved resilient in the face of tremendous domestic and external pressure, we believe it cannot
continue indefinitely. Consequently, we expect to see regime change by 2020, either through gradual reform or a popular uprising.
CHAPTER 2: ECONOMIC OUTLOOK
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Sanctions Hindering Growth
We forecast Iran's economy contracting 1.2% and 0.3% in real terms in 2012 and 2013 respectively, mainly as a result of the imposition
of tighter international sanctions on the hydrocarbon and financial industry. As we do not see sanctions being lifted anytime soon, the
economy will grow below potential over the medium term.
TABLE: ECONOMIC ACTIVITY
Monetary Policy
Inflation Risks Triggering Protests
We forecast consumer price inflation in Iran averaging 23.5% and 22.0% y-o-y in FY2012/13 and 2013/14 respectively, up from 21.8%
in FY2011/12.
Economic Activity II
Subsidy Reform Will Be Put On Hold
Further subsidy reforms in Iran, particularly with regards to energy products, will be unlikely before presidential elections are held
in 2013. While the reforms will be implemented gradually over the coming years, we caution that the current programme of raising
domestic energy prices is likely to result in an increase in anti-government sentiment.
TABLE: INFLATION
Fiscal Policy
Budget Heading Deeper Into Deficit
We project Iran's budget deficit coming in at 6.5% and 7.5% of GDP in FY2012/13 and 2013/14 respectively, up from 4.1% in
FY2011/12. While revenues will be constrained by low hydrocarbon exports, current expenditure is set to remain elevated, as cuts to
energy subsidies will be less significant than expected.
IRAN – FISCAL POLICY
Currency Forecast
IRR: Further Depreciation Ahead
Our near-term outlook for the Iranian rial is bearish. After the currency was devalued 8.6% in February, the unit's official exchange rate
has been trading sideways within the IRR12,220/US$-IRR12,259/US$ area since.
Banking Sector
All Signs Point To A Crisis
International sanctions and a weak macroeconomic backdrop will continue to take their toll on the Iranian banking sector throughout
2012.
TABLE: EXCHANGE RATE
CHAPTER 3: 10-YEAR FORECAST
The Iran Economy To 2021
The inability of Iran to fully exploit its enormous oil and gas wealth will keep real GDP growth rates averaging 2.4% over the next
years, despite the country's economy strong potential. Iran's youthful demographics mean that private consumption and investment will
primarily drive this growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
CHAPTER 4: BUSINESS ENVIRONMENT
SWOT Analysis
BMI Business Environment Risk Ratings
Regional Business Environment Outlook
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
Infrastructure
TABLE: LABOUR FORCE QUALITY
TABLE: MIDDLE EAST AND AFRICA – ANNUAL FDI INFLOWS
Market Orientation
TABLE: TRADE AND INVESTMENT RATINGS
Operational Risk
CHAPTER 5: KEY SECTORS
Pharmaceuticals
TABLE: PHARMACEUTICAL SALES, 2008-2016
TABLE: PRESCRIPTION DRUG SALES, 2008-2016
TABLE: PATENTED DRUG SALES, 2008-2016
TABLE: OTC MEDICINE SALES, 2008-2016
TABLE: GENERIC DRUG SALES, 2008-2016
TABLE: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA & FORECASTS
TABLE: TELECOMS SECTOR – INTERNET – HISTORICAL DATA & FORECASTS
TABLE: TELECOMS SECTOR – MOBILE – HISTORICAL DATA & FORECASTS
TABLE: TELECOMS SECTOR – ARPU – HISTORICAL DATA & FORECASTS
Other Key Sectors
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: OIL AND GAS SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TABLE: TELECOMS SECTOR KEY INDICATORS
TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS
TABLE: FREIGHT KEY INDICATORS
CHAPTER 6: BMI GLOBAL ASSUMPTIONS
Global Outlook
The Cycle Has Turned
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST