29 Sept 2025
This analysis provides an economic forecast for the Iranian year 1404, focusing on the potential trajectory of the dollar exchange rate. It examines various macroeconomic indicators, foreign policy implications, and domestic challenges that significantly influence currency value and overall economic stability.
The analysis offers insights into the economic outlook for the Iranian year 1404 (starting March 2025), specifically forecasting the dollar's price, including its fair value and potential upper bound, after reviewing various economic indicators and foreign policy threats.
Economic growth data for the nine months of 1403 (ending December 2024) revealed a worsening situation, with the forecast for 1404 expected to remain similarly low or even lower, primarily driven by oil and gas production rather than diverse economic activity.
Public expectations regarding inflation are very high, as citizens have learned from years of currency devaluation that holding Rial in long-term deposits leads to significant loss of value, prompting them to invest in alternative markets to preserve wealth.
The Central Bank Governor, whose responsibility includes maintaining the Rial's value, acknowledged public concerns and stated that the bank purchased and distributed gold among the public to alleviate worries, which indicates a lack of confidence in direct currency protection measures.
The year 1403 was characterized by turbulent foreign policy, with significant events occurring approximately every fifteen days; 1404 is anticipated to be a year of difficult decisions, especially if no external events like the Russia-Ukraine war (which facilitated Iran's oil sales) create new opportunities.
The inflation index suggests that lower inflation rates are unlikely, directly contradicting optimistic statements often made by monetary policymakers.
The Purchasing Managers' Index (PMI) indicates an economy in recession, the long-term trend of the labor participation rate has significantly declined (particularly for women), reflecting widespread disillusionment with the profitability of work, and national productivity is essentially non-existent.
While budget transparency has improved with the addition of a 'super-budget', expenses continue to grow, with allocations often directed to unproductive sectors, while revenues are unstable, leading to persistent budget deficits that necessitate direct or indirect money printing by the government, fueling liquidity and dollar growth.
The government has increased tax revenues, exceeding targets, and aims to rely more on taxes than oil; however, consistently raising taxes (e.g., a 19% increase this year) is leading to a recession, causing businesses to shrink and resulting in unsustainable long-term revenue collection, contrasting with global examples like tax cuts used to stimulate economic activity.
The business environment is plagued by numerous challenges and bureaucratic hurdles, including taxes, social security, and municipal fees, which are perceived as battling against businesses, discouraging entrepreneurship, hindering job creation, and leading to widespread business failures, despite many citizens' desire to work and contribute domestically.
People have learned from repeated devaluation that holding their money and investing in rising markets is preferable to long-term deposits, as it at least preserves value.
| Indicator | Observation | Impact |
|---|---|---|
| Economic Growth (1403-1404) | Worsened in 1403, with similar or lower forecast for 1404. | Primarily driven by oil/gas, not real economic activity, indicating stagnation. |
| Public Expectations / Rial Devaluation | High inflationary expectations; public avoids long-term Rial deposits. | People seek to preserve wealth by investing in alternative, rising markets. |
| Foreign Policy Stability (1403-1404) | Turbulent 1403; 1404 expected to require tough decisions. | Creates uncertainty; lack of external catalysts for economic relief. |
| Inflation Index | Not expected to decrease, contrary to official claims. | Continued erosion of purchasing power and real incomes. |
| Purchasing Managers' Index (PMI) | Indicates economic recession. | Stagnation of business activity and investment. |
| Labor Participation Rate | Significant decline, especially for women, and long-term trend. | Widespread disillusionment with work profitability; potential brain drain. |
| National Productivity | Essentially non-existent. | Hindrance to sustainable economic development and competitiveness. |
| Budget Deficit | Growing expenses, unstable revenues, unproductive allocations. | Leads to government money printing, fueling liquidity and dollar growth. |
| Taxation Policy | Increasing taxes (e.g., 19% rise) for revenue stability. | Contributes to recession, makes long-term revenue unsustainable, discourages businesses. |
| Business Environment | Numerous bureaucratic and regulatory obstacles (taxes, social security). | Discourages entrepreneurship, hinders job creation, leads to business failures. |
