Iran’s Manufacturing Faces Slump Amid Lower Demand

Iran’s manufacturing industry is in decline as reports attribute plummeting sales to a substantial drop in demand hitting businesses both domestic and export markets.

According to a report by Iran's leading economic newspaper Donyaye Eghtesad (World of Economy), production-related issues such as raw material shortages and difficulties in securing foreign currency, have led to the suspension of many production units.

Soaring inflation, reduced consumer purchasing power, and a decline in demand for intermediate goods (also known as producer goods or semi-finished products), coupled with the government’s contractionary approach to the industrial sector and its interventions, have exacerbated the downturn in sales.

Highlighting the stagnation and lack of sustainable growth in the manufacturing sector, the newspaper said the government’s target economic growth rate of 8% is far from reality. Citing official statistics, the report said that the growth of Iran’s industrial and mining sector last summer was 8.7% when including the oil sector, but excluding oil, it had a negative growth of 0.4% compared to the same period the previous year. It added that the unstable growth trajectory of the industrial sector in the current Iranian year (started March 21, 2023) impacted the industrial sector's contribution to overall economic growth, decreasing from 0.8% to 0.3%.

The daily used two data sources for its analysis, a report by the Iran Chamber of Commerce on the country’s Purchasing Managers' Index (PMI) and a report by the Parliament Research Center. Examination of industrial companies listed on the stock exchange also reveals a decreasing trend in the growth index of these companies' sales, reaching the lowest point in the current season since the winter of 2021. Additionally, the production index of these industrial companies is nearly at its lowest point in the last two years, further proof of a recession in Iran's industries and manufacturing.

The Chamber of Commerce’s PMI report also revealed that weak domestic demand and a decrease in exports have led manufacturing companies to register a reduction in the Customer Sales Index (45.27) for the sixth consecutive month in December. The PMI, an index of the prevailing direction of economic trends in the manufacturing and service sectors, is based on a monthly survey of supply chain managers across dozens of industries.

The ongoing trend of reduced purchasing power and customer liquidity constraints on one side, and a decline in export sales due to the government’s inefficient regulations on the other, have led to a situation that exports cannot serve as a viable replacement to make up for weakened domestic demand, Donyaye Eghtesad noted.

According to the newspaper, economic experts argue that in addition to reduced consumer purchasing power and a a 50-percent annual inflation rate, the decline in industrial sales is the result of government interventions in foreign currency and export matters, inadequate financial support from banks for industries, and discrimination among sectors in terms of allocation of resources.

Abbas Jabalbarghi, the Vice President of the Industries Committee of the Iran Chamber of Commerce, told the daily that “the government must refrain from interfering in the manufacturing sector." Noting that “its intervention in foreign currency regulations and rates has had a detrimental impact on production, subsequently affecting the overall economic cycle and the money supply.” 

The report also underlined that analysts believe the Islamic Republic’s foreign policy and isolation from the international trade market due to various US and international sanctions have also played a significant role, further restricting Iranian industrialists.