PMI Report - Khordad 1399 (May 21 - June 20)
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Currency Weakness Slows Recovery
New Purchasing Managers’ Index (PMI) data published by the Iran Chamber of Commerce indicates that a surge in raw material prices, related to the weakening of the rial in the NIMA exchange through which importers purchase foreign currency, has begun impeding output.
Whole Economy PMI shows Iran’s economy dipping back into contraction in the Iranian calendar month of Khordad 1399 (May 21 – June 20). Whole Economy PMI fell to 48.41 from 50.17 in the prior month.
According to the chamber of commerce, businesses reported a deterioration in three key sub-indices—raw materials inventory, new orders, and employment—when compared to the previous month, suggesting that the post COVID-19 recovery has lost some of its early momentum.
The sub-index for the purchase price of raw materials hit a record high of 91.94, mirroring the record low value of the rial in the NIMA exchange. The chamber predicts that this price increase will add to inflationary pressures—the sub-index for the price of manufactured goods and services reached a nine-month high of 71.39 in Khordad 1399 (May 21 – June 20).
According to new data from the Statistical Center of Iran, inflation reached an annual rate of 27.8 percent in Khordad 1399 (May 21 – June 20).
The PMI reading of the employment sub-index dropped to its lowest rate (44.76) over the past quarter which ended on June 20. The chamber blames the decline on the extended shutdown of some businesses in the service sector. According to the report the services sector has observed a steeper decline compared to other sectors while the housing sector—observing an increase in activity—recorded improvement in employment sub-index.
Looking to the whole economy, confidence in the pace of the recovery has fallen. The sub-index for expectations of economic activity in the coming month dropped to 50.83 from 58.7 a month earlier, which reflects the concerns over raw material inventories and job creation.
But business in Iran continue to point to long-standing challenges as disrupting the COVID-19 recovery. The ongoing pressure of U.S. sanctions on Iran’s foreign exchange earnings as well as poor regulation of the foreign exchange markets continue to concern those businesses that depend on reliable and affordable imports.
Iran’s manufacturing sector continue to expand in Khordad 1399 (May 21 – June 20), but at a slower pace. Manufacturing PMI dropped to 56.8, down from 63.21 a month earlier. While manufacturing activity has returned to levels seen before the COVID-19 lockdown, the PMI survey identifies risks to continued expansion due to the possible shortages of raw materials, price volatility, and weakening demand. The combination of increased raw material prices and weakening demand could squeeze margins for many manufacturers.
Looking to specific sectors, the Iran Chamber of Commerce has highlighted a sharp increase in the price of machinery and spare parts for the mining sector, a shortage of raw materials in the rubber and plastic producers, and a reduction in the supply of electronic parts for the country’s electronics manufacturers. Across the board, delays in foreign exchange allocations have hampered timely and cost-effective imports of key inputs.
The impact on the sector is reflected in a decline in the Manufacturing PMI sub-index for output, which fell to 58.69 from 71.92 in the prior month. Sentiment has also grown more negative as the sub-index tracking expectations of economic activity in the coming month fell to 50.83 from 58.7 in the prior month.
While Iranian companies have had to confront many operational challenges over the last year, foreign exchange markets were stabilizing for much of the Iranian calendar year of 1399 (March 2019 – March 2020). The new volatility in the foreign exchange market, particularly in the NIMA rate, poses a major challenge for Iran’s economic policymakers.
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Whole Economy PMI
Manufacturing PMI
Photo: Abed Mirmasoumi
