June 16, 2024
The 2010s, a Lost Decade for Iran’s Economy
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The 2010s, a Lost Decade for Iran’s Economy

By Ahmad Al Jabbouri

“Lost decade” is a term used to describe the state of the Japanese economy in the 1990s, a decade associated with negative inflation, a sharp drop in housing prices, labor shortages, and a set of misguided economic policies by the Japanese government.

This term is now used to describe the 2010s in the Iranian economy.

Two weeks ago, the Central Bank of Iran (CBI) released a preliminary report on Iran’s economic growth rate in the last decade. Based on this report, the frozen period of the Iranian economy is now ended and after two consecutive years of negative growth, this country’s economy has achieved positive growth.

According to the CBI, Iran’s economic growth rate dropped to 3.6 percent last year, and the growth rate of the economy without oil was 2.5 percent.

Although the economic growth rate was declared positive last year, the study of the value of GDP at the constant prices in 2010, show the Iranian economy has been stuck in a rut in this period (2010-2019).

Decreased Production

The value of Iran’s GDP last year at the basic prices decreased about 636 thousand billion tomans, which is even slightly less than the GDP in 2010. The course of changes in this period shows that the value of GDP in 2017 reached the highest level in this decade and recorded a figure of 694 thousand billion tomans. The lowest level of GDP in these years was in 2013, when GDP at constant prices was about 585 thousand billion tomans.

The decrease in the total value of Iran’s GDP from 2010-2019, is one of the elements to describe this period as a “lost decade”.

The Drop in the Consumption Rate Makes Life Harder

In economic growth reports, the closest indicator to citizens’ well-being is statistics on private sector consumption expenditures. In general, higher private-sector consumption is a sign of a better situation for individuals and households. A study of the consumption trend of the private sector in this period shows that the consumption of the private sector in 2019 is even lower than the figure recorded in 2010.

The CBI has announced the consumption expenditures of the private sector in 2019 as 249.8 thousand billion tomans, which is the lowest figure for the consumption of the private sector in the period 2010-2019.

Although the consumption trend of the private sector was positive in the winter of last year, the growth rate of private consumption expenditures in 2019 was also faced with a negative growth.

In the six years of this decade, the growth trend of consumer spending has been negative and the average growth rate of private consumption spending was negative 5.8 percent.

The decline in private consumption in the 2010s is further evidence of the “lost decade” of Iranians in these years, who were forced to reduce their consumption basket.

Disinvestment in the Iranian economy

Economic growth requires investment for production units to be able to survive or new production units to be added. The changes in figures related to the formation of gross fixed capital in national accounts can show how much the economy has been grown.

According to the statistics published by CBI, the gross fixed capital formation rate in 2010-2019 was mostly negative, meaning that not only there was no new investment made to create employment, but also the status quo in these years was unstable. The Machinery and buildings related to production units and enterprises have been depreciated and these capitals have not been replaced by newer machines with higher productivity during these years.

The average gross fixed capital formation growth rate during this period was negative 4.2 percent. The analysis of gross fixed capital formation depicts another evidence of a lost decade in which investment, consumption and GDP have declined.

Declining National Income

The latest indicator in the statistics of the CBI shows the decrease of national income in this decade. In 2019, the national income at constant prices in 2010 dropped to 393.9 thousand billion tomans, which compared to 2018, has experienced a decrease of 5.8 percent.

A study of national income from 2010 to 2019 shows that national income fell to its lowest level at constant prices at the end of this period and the national income at constant prices has decreased by 29 percent.

Iran’s economy grew positively in 2019. The estimates by the World Bank and other international institutions confirm that in the next one or two years, Iran’s economy will experience slight growth in the range of 2.2 and 2.3 percent. If a strange event such as the escalation of the conflict and international tensions does not show up, this trend will maintain its growth. Meanwhile, this growth is not enough to compensate for the economic damages of the 2010s.

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