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These 6 charts show how sanctions are crushing Iran’s economy – CNBC

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General view of an Iran flag on January 12, 2019 in Abu Dhabi, United Arab Emirates.
Matthew Ashton – AMA | Getty Images

Iran’s economy is crumbling after years of U.S. sanctions — and Tehran insists Washington must suspend those restrictions before the two sides can return to nuclear talks.

Both countries have indicated interest in returning to the negotiating table, but neither the U.S. nor Iran wants to give in to the other.

Iran appears to have calculated that it can withstand the economic pressure that accumulates as it takes a harder position against the Biden administration.
Matthew Bey
Senior global analyst, Stratfor

Iran signed the nuclear deal — officially known as the Joint Comprehensive Plan of Action (JCPOA) — with the U.S., China, France, Russia, the U.K. and Germany in 2015.

But former U.S. President Donald Trump withdrew from the agreement in 2018 and imposed sanctions under a “maximum pressure” policy to force the regime back to negotiations.

Here are six charts that show how Iran’s economy is struggling.

Iran’s economy shrinks

Iran’s economy contracted an estimated 4.99% in 2020, steadily shrinking since 2017.

In comparison, the Islamic Republic enjoyed a sharp economic growth of 12.5% in 2016 after the nuclear deal was signed. However, that reprieve was short-lived.

“It’s impossible to know precisely what the numbers would be had there been no sanctions,” said Abrams, former U.S. special representative for Iran during the Trump administration who is nowa senior fellow for Middle Eastern studies at the Council on Foreign Relations (CFR). “But I think it’s pretty clear that the sanctions have had an impact on the Iranian economy and on the government budget.”

The International Monetary Fund sees Iran’s gross domestic product growing 3% in 2021.

Oil production and exports hurt

The sanctions lowered Iran’s ability to sell oil and prevented them from repatriating money from energy sales, Abrams said.

“There are billions of dollars sitting in banks in Iraq and China and South Korea … that Iran cannot get its hands on due to the sanctions,” he said.

According to IMF estimates, the Islamic Republic’s oil exports are expected to continue falling in 2021.

World trade with Iran falls

Exports and imports both fell sharply after the sanctions were reimposed. Besides oil, Iran’s industrial metals, a large source of the country’s export revenue, were also sanctioned.

IMF estimates suggest Iran fell into a trade deficit of $3.45 billion in 2020. The country had a trade surplus of $6.11 billion in 2019, according to the IMF.

Inflation spikes

The Iranian currency has dropped steadily since early 2018, but Matthew Bey, a senior global analyst at Stratfor, said the rial has “somewhat stabilized.”

Still, its value on the unofficial market stands at more than 250,000 rials per dollar — that’s far from the central bank’s official rate of 42,000 rials per dollar that’s used for most imported goods.

A weaker currency makes imports more expensive for locals, and high inflation means the cost of living is rising at a time when the people are already struggling with a weak economy and job market.

Weak job market

High unemployment rates are set to increase even further given Iran’s economic struggles.

An estimated 12.4% of the population is expected to be out of work in 2021, according to IMF projections.

Widening fiscal deficit

Iran’s government is spending beyond its means, and has seen a widening fiscal deficit. While this is not always a bad thing, it could restrict the country’s ability to improve economic activity and recover from the coronavirus pandemic.

“I’m sure that the national budget is of some interest (to Iran’s Supreme Leader Ayatollah Ali Khamenei) because he would want money for the Revolutionary Guards, for Hezbollah, for the Shia militias in Iraq and for various other expenses that they have,” said Abrams from CFR.

However, he pointed out that the usual concerns of a civil government — such as national income, average family income, rate of inflation, or jobless rate — may not be important to the religious leaders.

Road to a U.S.-Iran deal?

An agreement between the U.S. and Iran is not impossible — but only if each side softens its current stance, according to Bey.

The United States, Bey said, would have to accept that sanctions relief is a necessary step toward getting Iran to comply with the JCPOA. On the other hand, Iran has to recognize that if it doesn’t take “substantial steps,” the Biden administration cannot fully suspend sanctions.

Once you’ve gone back to the JCPOA, you have lifted most of the significant economic sanctions. Therefore, you have eliminated most of your leverage to get Iran to agree to these additional things…
Elliott Abrams
Council on Foreign Relations

Abrams, on the other hand, said there’s a “very significant problem” in the Biden administration’s Iran policy, which is to revive the nuclear deal before negotiating a broader agreement that includes Iran’s missile program and its support for militias in the region.

“But once you’ve gone back to the JCPOA, you have lifted most of the significant economic sanctions,” he said. “Therefore, you have eliminated most of your leverage to get Iran to agree to these additional things that it does not want … to agree to and I don’t see why it would agree at that point,” he added.

Stratfor’s Bey pointed out that Tehran has insisted on sanctions being lifted before talks begin.

“Iran appears to have calculated that it can withstand the economic pressure that accumulates as it takes a harder position against the Biden administration,” Bey said.

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Canada to go big on budget spending as pandemic lingers, election looms

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By Julie Gordon

OTTAWA (Reuters) – Canada‘s Liberal government will deliver on its promise to spend big when it presents its first budget in two years next week amid a fast-rising third wave of COVID-19 infections and ahead of an election expected in coming months.

Finance Minister Chrystia Freeland has pledged to do “whatever it takes” to support Canadians, and in November promised up to C$100 billion ($79.8 billion) in stimulus over three years to “jump-start” an economic recovery in what is likely to be a crucial year for her party.

Prime Minister Justin Trudeau’s Liberals depend on the support of at least one opposition group to pass laws, and senior party members have said an election is likely within months as it seeks a clear majority and a free hand to legislate.

Furthermore, by September, all Canadians who want to be vaccinated will be, Trudeau has said.

Freeland has said the pandemic created a “window” of opportunity for a national childcare plan, and that will be reflected in next Monday’s budget along with spending to accelerate Canada‘s shift toward a more sustainable economy.

“It will be a green and innovative recovery plan aimed at creating jobs,” said a government source who declined to comment on specific measures. The budget will aim to help those “who have suffered most” the effects of the pandemic, the source said.

Critics say the government would be better to hold off on blockbuster spending because the economy has shown it is poised to bounce back, and to prevent the country from racking up too much debt.

“Clearly a garden-variety stimulus package is the last thing we need. This is pile-on debt,” said Don Drummond, an economist at Ontario’s Queen’s University.

“The risk is that at some point interest rates are going to go up and we’re going to be in trouble,” he said, pointing to the mid-1990s when Canada‘s debt-to-GDP ratio skyrocketed, leading to rating agency downgrades and years of austerity.

The Bank of Canada cut its benchmark interest rate to 0.25% to counter the economic fallout of the COVID-19 crisis and has said rates will not rise until labor market slack is absorbed, currently forecast for into 2023. That may change when it releases new projections on April 21.

EXPANDING ECONOMY

More than 3 million Canadians lost their jobs to the pandemic. As of March, before a third wave forced new lockdowns, only 296,000 remained unemployed because of COVID.

Despite still-high unemployment levels in hard-hit service sectors, the economy has expanded for nine straight months even as provinces have adjusted health restrictions to counter waves of infections.

“Once we see sustained reopening, we do think that the recovery will have quite a bit of momentum on its own,” said Josh Nye, a senior economist at RBC Economics.

“We think Canada‘s economy will be operating pretty close to full capacity by this time next year,” he said.

Economists surveyed by Reuters expect Freeland to project a deficit in the range of C$133 billion to C$175 billion for fiscal 2021/22, up from the C$121.2 billion ($96.7 billion)

deficit forecast in November. https://tmsnrt.rs/3wSJPcm

The deficit for fiscal 2020/21 ended in March is forecast by the government to top a historic C$381.6 billion ($304.5 billion).

Canada announced on Monday a C$5.9 billion ($4.7 billion) aid package for the country’s largest airline carrier, Air Canada, and said talks were ongoing with No. 2 carrier WestJet Airlines Ltd and others.

 

(Reporting by Julie Gordon in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Steve Scherer and Peter Cooney)

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CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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