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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.

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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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Beijing At A Loss On What To Do About Its Economic Challenges? – Forbes

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China’s annual “Two Sessions” conference has for decades revealed the party agenda to the faithful. This year’s meeting offered them little, a startling development given China’s huge economic and financial challenges – a property crisis, export shortfalls, demographic decline, a loss of confidence among consumers and private business owners, and growing hostility in foreign capitals. More than ever, China needs Beijing to act, to point the way to future action. The failure to address this need at the Two Sessions suggests that China’s leadership has run out of ideas.

Most telling was the absence of the traditional press conference. Every Two Sessions meeting has included a space for China’s leadership to interact with both domestic and foreign media. The senior men in government were not always forthcoming at these exchanges, but their evasive answers at least pointed out publicly what matters they considered touchy or awkward. When this year’s press conference was cancelled, one can only conclude that the good and the great in the Forbidden City worry about being embarrassed.

The authorities did announce a real growth target for 2024. They set it at “around 5 percent.” In one respect, this information can only be described as bland. It was expected and is very close to last year’s pace. In another respect, however, it confesses failure of a sort. It is, after all, barely over half the real growth rate China averaged up until 2019. And with all the problems, it is not clear that China can even make that rate. Last year the economy had a tailwind from pandemic recovery. None of that is in play in 2024. Meanwhile, the authorities never explained how they intended to achieve the growth.

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Infrastructure spending was mentioned, one trillion yuan ($132.9 billion) worth of it. Infrastructure is China’s default form of economic stimulus. But little was said about how China would finance such spending. Local governments, the usual source of infrastructure financing, face huge debt overhangs, some so severe that they cannot even meet the public service needs of their populations. True, Beijing said it was ready to take the unusual step of issuing central government debt to finance the spending. But even that raises questions. The government already faces record high budget deficits. The emphasis on “ultra-long bonds” may hint at how difficult financial matters have become. Long maturities will delay the need to repay the debt and show that Beijing does not expect an immediate return from its spending.

Little was said about the property crisis with all its adverse economic and financial ramifications. Despite the need for bold action on this front, all Beijing has mustered so far are the “white lists” in which local governments compile a list of failing real estate projects for financing that the state-owned banks would review before advancing the funds. The amounts discussed so far, however, are tiny compared with the need, barely over 5 percent of Evergrande’s initial failure two and half years ago. Some weeks back, talk emerged about a plan for the government to take over some 30 percent of the housing market. Although such an action would have brought China other severe problems, it would have been big enough to disguise the property crisis. Nothing as bold or substantive as that got a hearing at the Two Sessions.

On China’s deflation problem, the authorities did indicate a target of 3 percent inflation for the year but said nothing about how they planned to achieve it. To be sure, deflation is more a symptom than a cause of the country’s challenges, which in part lie with inadequate demand for consumption and capital spending by private business, but neither did China’s leadership say much about these problems either. The only concrete suggestion was a promise by the People’s Bank of China (PBOC) to cut interest rates more than the bank already has. Given the lack of an economic response to past rate cuts, this promise hardly seems an adequate answer. In any case, as soon as the conference ended, the PBOC at its own meeting decided against another interest rate cut.

Talk did center on new growth engines for the economy, what the conference referred to as “new productive sources.” There was little new here. Renewable energy, advanced technology, and electric vehicles led the list. Like so much else offered at the Two Sessions, the talk was all aspirational. No one suggested how China planned to promote these areas beyond what is already being done. Given the sorry state of China’s economy, that is not enough.

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If the Two Sessions is supposed to announce a guide to China’s future, this year’s meeting missed its mission, especially in the face of China’s many economic and financial problems. Perhaps more complete and substantive guidance will emerge at next month’s politburo meeting, but given how the Two Sessions went, that seems unlikely. China’s leadership seems to have run out of ideas.

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U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Canadian economy starts the year on a rebound with 0.6 per cent growth in January

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

WATCH | The Canadian economy grew more than expected in January: 

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Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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