The removal of US sanctions under former US President, Obama and the recovery in oil prices supported stronger growth in 2016 and 2017. But the reimposition of sanctions caused the economy to contract 1.8% in 2018. Sanctions will likely cause the economy to contract a further 3.6% in 2019. But stronger oil prices and temporary US exemptions to the embargo on Iranian oil pose some upside to the outlook. Favourable demographics and abundant energy resources (Iran has the world’s second largest gas reserves and fourth largest oil reserves) bode well for the long-term outlook. But with limited employment opportunities for the large population, and a continued dependence on oil revenues, Iran will have difficulty lifting its living standards.
Iran gained upper-middle income status in 2009 and per capita incomes are currently around US$5,000, similar to Jamaica and Macedonia. Yet despite recent rises, youth unemployment remains a problem with 1 in 4 youths unemployed. Some 750,000 youths enter the labour market every year, and many struggle to find jobs. Indeed, Iran faces enormous challenges, after inflation reached 40% in December 2018 bought on from US sanctions and enormous devaluing of the Iranian rial. Sanctions are expected to weigh heavily on the oil industry and raises the risk of stagflation over the coming years.