Real GDP grew by +3.8% in fiscal year (FY; usually ending on 20 March) 2017/18, a normalization after the +12.5% recorded in FY 2016/17 on the back of the partial relief of sanctions in early 2016. However, the outlook for the next years has significantly darkened after the U.S. in May announced the re-imposition of its pre-2016 sanctions on Iran, including the secondary sanctions affecting non-U.S. companies. The re-imposition will be completed in November. The impact on the Iranian economy has been harder than initially expected. The official exchange rate of the rial (IRR) has been kept stable by the Central Bank to date, but the currency has lost two thirds of its value against the USD on the black market since May, which has widened the gap between the two rates to over 200%. The rapid depreciation contributed to a surge in inflation to 24.2% y/y in August. We expect oil exports to roughly halve from 2.3mn bbl/day in FY2017/18 by mid-2019. As a result, real GDP growth is forecast to decelerate to +1.2% in FY 2018/2019 and -1% in FX 2019/20.
