Economy
Can Iran’s new President Raisi fix a deeply troubled economy? – Al Jazeera English
Tehran, Iran – Ebrahim Raisi, who will be sworn in on Thursday as Iran’s eighth president, inherits a troubled economy whose fate has been intertwined with political upheavals.
The “revolutionary” government he’s promised to form has a Herculean task ahead to fix an economy that suffers from a toxic mix of United States sanctions, the COVID-19 pandemic, and structural issues that have taken hold after decades of mismanagement.
One inescapable economic hardship that increasingly makes everyday life more difficult for Iranians is inflation, which many Iranian economists and analysts expect to remain above 40 percent at least until later this year.
This is while the central bank had set a target of 22 percent for annual inflation for both the previous and the current Iranian calendar year, which ends in March 2022.
“Unfortunately, today we are on the brink of a severe and uncontrollable inflationary situation,” economist Masoud Nili warned in a meeting of economists with Raisi in early July, according to a government press release.
According to a report by the labour ministry, food inflation crossed the “crisis” threshold in the month ending June 21, with over two-thirds of staples like meat, rice and fruits seeing an average annual price hike of at least 24 percent.
Other food essentials have exceeded even that, with prices of butter, chicken and liquid oil skyrocketing by 121 percent, 118 percent, and 89 percent in the past year, respectively.
Global food prices have spiked this year as economies scale back COVID-19 restrictions and reopen for business, triggering supply bottlenecks.
But that has only exacerbated Iran’s inflationary problems that predate the pandemic.
A lightning-fast increase in money supply has been the main culprit driving the devaluation of the Iranian rial, especially as US sanctions blocked the country’s access to its own currency reserves outside the country.
US sanctions have also effectively cut Iran out of the global economy, slashing oil revenues and incomes. As the administration of former US President Donald Trump barraged Iran with one blacklisting after another, the cash-strapped government of former President Hassan Rouhani kept leaning on a dependent central bank to print more money.
Since 2018, when the Trump administration unilaterally abandoned Iran’s 2015 nuclear deal with world powers and embarked on a maximum pressure campaign to hobble the country’s economy, Iranian officials have promised to introduce “structural reforms” to wean the country’s overstretched budget off of oil revenues.
But even as the government was accused of shoring up its finances by encouraging ordinary Iranians to jump into a stock market bubble that burst, it still faced a massive budget deficit that is believed to reach as high as 3 quadrillion rials ($12bn) for the current fiscal year ending March 2022.
Meanwhile, the unemployment rate for all workers was 9.6 percent for the calendar year that ended in March, according to the central bank, and 16.7 percent for youths aged 18 to 35.
Inflation, as well as inequality, corruption and housing were all issues that surfaced during televised presidential debates in June.
Raisi promised to build four million homes in four years to alleviate a housing crunch, overhaul the outdated banking system, create one million jobs annually, and slash inflation by half before gradually bringing it down to single digits.
His predecessors made similar promises, on which they largely failed to deliver.
The JCPOA factor
Iran says by relying on its “resistance economy” doctrine of boosting local production, it has largely weathered the storm of US sanctions and the deadliest pandemic in the Middle East.
The central bank claims the economy grew by 3.6 percent during the previous calendar year ending in late March.
But even the country’s hardliners who spent years bashing the nuclear deal as an abject failure have said it must be restored to lift US sanctions.
Raisi has also promised to form a “strong” government that would be able to exact concessions from the West during talks over the Joint Comprehensive Plan of Action (JCPOA), as the nuclear deal is formally known, and lift US sanctions for good.
But even if the nuclear deal is revived with little or no changes to its original text, economist Meysam Hashemkhani says the immediate impact on the economy would be modest.
“The whole world witnessed Trump’s withdrawal from the JCPOA and would consider the risk of something like that happening again in dealing with Iran,” he told Al Jazeera.
“Even if they might have thought Trump was wrong, they saw what happened. So now the JCPOA must remain stable for a few years for others to believe it’s sustainable.”
In the short term though, Hashemkhani believes a full restoration of the nuclear deal can prevent some further harm to the country, and especially its beleaguered private sector businesses that have faced a myriad of challenges, including but not limited to money transfer issues.
The government could sell more oil, but Hashemkhani said he’s not optimistic that would translate into a major improvement for the oil-dependent economy, which has been dealing with similar structural issues for decades.
In the long run, he said Iran should capitalise on opportunities presented by the restoration of the nuclear deal by inoculating itself against the potential for it to fall apart again.
“Iran has to reach strategic alliances with countries in the region in the form of long-term trade agreements lasting at least 15 years,” he said.
Through these agreements, and boosting tourism and investment deals, regional interests would become so intertwined that the US would have to think twice before considering reneging on the JCPOA again, he added.
Hashemkhani also believes resolving long-standing issues like budget deficits and inflation are not tied to sanctions, and can be remedied through policy changes like abolishing the artificial currency rate for imports and similar measures that encourage rent-seeking activities and waste billions each year.
He said neighbours Iraq and Afghanistan, for instance, have faced larger crises and constant instability but have maintained single-digit inflation.
“In contrast,” he said, “inflation in Iran stood at an average of 15 percent during the three years the JCPOA was in effect.”
Economy
Opinion: Canada's economy has stagnated despite Trudeau government spin – Financial Post
Article content
Growth in gross domestic product (GDP), the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of economic performance. To assess Canadian living standards and the current health of the economy, journalists, politicians and analysts often compare Canada’s GDP growth to growth in other countries or in Canada’s past. But GDP is misleading as a measure of living standards when population growth rates vary greatly across countries or over time.
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Federal Finance Minister Chrystia Freeland recently boasted that Canada had experienced the “strongest economic growth in the G7” in 2022. In this she echoes then-prime minister Stephen Harper, who said in 2015 that Canada’s GDP growth was “head and shoulders above all our G7 partners over the long term.”
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Unfortunately, such statements do more to obscure public understanding of Canada’s economic performance than enlighten it. Lately, our aggregate GDP growth has been driven primarily by population and labour force growth, not productivity improvements. It is not mainly the result of Canadians becoming better at producing goods and services and thus generating more real income for their families. Instead, it is a result of there simply being more people working. That increases the total amount of goods and services produced but doesn’t translate into increased living standards.
Let’s look at the numbers. From 2000 to 2023 Canada’s annual average growth in real (i.e., inflation-adjusted) GDP growth was the second highest in the G7 at 1.8 per cent, just behind the United States at 1.9 per cent. That sounds good — until you adjust for population. Then a completely different story emerges.
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Over the same period, the growth rate of Canada’s real per person GDP (0.7 per cent) was meaningfully worse than the G7 average (1.0 per cent). The gap with the U.S. (1.2 per cent) was even larger. Only Italy performed worse than Canada.
Why the inversion of results from good to bad? Because Canada has had by far the fastest population growth rate in the G7, an average of 1.1 per cent per year — more than twice the 0.5 per cent experienced in the G7 as a whole. In aggregate, Canada’s population increased by 29.8 per cent during this period, compared to just 11.5 per cent in the entire G7.
Starting in 2016, sharply higher rates of immigration have led to a pronounced increase in Canada’s population growth. This increase has obscured historically weak economic growth per person over the same period. From 2015 to 2023, under the Trudeau government, real per person economic growth averaged just 0.3 per cent. That compares with 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.
Recommended from Editorial
Canada is neither leading the G7 nor doing well in historical terms when it comes to economic growth measures that make simple adjustments for our rapidly growing population. In reality, we’ve become a growth laggard and our living standards have largely stagnated for the better part of a decade.
Ben Eisen, Milagros Palacios and Lawrence Schembri are analysts at the Fraser Institute.
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Economy
Federal budget is about ensuring fair economy for ‘everyone’: Trudeau – Global News
Delivering remarks to his Liberal cabinet during a caucus meeting on Wednesday, Prime Minister Justin Trudeau emphasized that the newly-announced federal government is intended to help create a fair economy for “everyone” in Canada, particularly those from Millennials and Gen Z.
Economy
Russia to grow faster than all advanced economies says IMF – BBC.com
An influential global body has forecast Russia’s economy will grow faster than all of the world’s advanced economies, including the US, this year.
The International Monetary Fund (IMF) expects Russia to grow 3.2% this year, significantly more than the UK, France and Germany.
Oil exports have “held steady” and government spending has “remained high” contributing to growth, the IMF said.
Overall, it said the world economy had been “remarkably resilient”
“Despite many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not suffer sudden stops,” the IMF said.
The IMF is an international organisation with 190 member countries. They are used by businesses to help plan where to invest, and by central banks, such as the Bank of England to guide its decisions on interest rates.
The group says that the forecasts it makes for growth the following year in most advanced economies, more often than not, have been within about 1.5 percentage points of what actually happens.
Despite the Kremlin being sanctioned over its invasion of Ukraine, the IMF upgraded its January predictions for the Russian economy this year, and said while growth would be lower in 2025, it would be still be higher than previously expected at 1.8%.
Investments from corporate and state owned enterprises and “robustness in private consumption” within Russia had promoted growth alongside strong exports of oil, according to Petya Koeva Brooks, deputy director at the IMF.
Russia is one of the world’s biggest oil exporters and in February, the BBC revealed millions of barrels of fuel made from Russian oil were still being imported to the UK despite sanctions.
Away from Russia, the IMF downgraded its forecasts across Europe and for the UK this year, predicting 0.5% growth this year, making the UK the second weakest performer across the G7 group of advanced economies, behind Germany.
The G7 also includes France, Italy, Japan, Canada and the US.
Growth is set to improve to 1.5% in 2025, putting the UK among the top three best performers in the G7, according to the IMF.
However, the IMF said that interest rates in the UK will remain higher than other advanced nations, close to 4% until 2029.
The group expects the UK to have the highest inflation of any G7 economy in 2023 and 2024.
Chancellor Jeremy Hunt said the IMF’s figures showed that the UK economy was turning a corner.
“Inflation in 2024 is predicted to be 1.2% lower than before, and over the next six years we are projected to grow faster than large European economies such as Germany or France – both of which have had significantly larger downgrades to short-term growth than the UK,” he said.
Conflict in the Middle East
Economists at the IMF warned that if the Israel-Hamas conflict escalates further in the Middle East it could lead to rising food and energy prices around the world.
Continued attacks on ships in the Red Sea and the ongoing war in Ukraine could also affect the so far “remarkably resilient” global economy, it said.
A potential spike in food, energy and transport costs would see lower-income countries hardest hit, it added.
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