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Recent Study: Iran Business Forecast Report Q4 2013.

[USPRwire, Fri Aug 16 2013] Despite heightened rhetoric in 2012, we do not believe Iran's threats to close the Strait of Hormuz are credible. Any cut-off in oil export receipts would hit the economy hard, and the government would therefore be very unlikely to follow through with its threats.

The economy will remain a regional laggard as investment activity stalls following the imposition of a more stringent set of international sanctions on the regime in 2012 and 2013.

The Iranian rial will remain under fundamental downside pressure as households continue to shift their savings into dollars and gold.

Major Forecast Changes

We have revised our real GDP growth forecasts this quarter, and are projecting the economy to fall 2.0% in real terms in 2013, up from our previous forecast for a 2.3% contraction. Although recent data show that oil production is continuing to decline at a rapid rate, the victory of moderate cleric Hassad Rouhani in presidential election in June will bolster business confidence, while we expect macroeconomic management to improve. Growth will return in 2014; however, the economy will continue growing below potential over the coming years.

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We have revised up our forecast for the Iranian rial, which we see averaging IRR34,000/US$ in unregulated trading in 2013, compared to our previous forecast of IRR36,000/US$. Although improved confidence on the country's economic trajectory and more cordial relations with the West will cushion from a dramatic drop in the value of the rial, downside pressure on the unit will remain elevated this year. As a result, inflationary pressure will remain raised over the coming quarters.

Key Risks To Outlook

Higher global energy prices may lead to upside risk to our growth forecasts and downside risk to our fiscal deficit forecasts.

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Date:Aug 16, 2013
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