Iran Economy Faces Deepening Recession as PMI Signals Continued Decline

TEHRAN (Iran News) The PMI, a key indicator of business conditions, highlights a broad decline across most of its components. Production levels, new customer orders, order delivery speed, and raw material inventories all contracted in Bahman, though employment showed a modest uptick—the highest in four months. Despite this, the overall trend points to a sluggish economy grappling with multiple challenges.

The industrial sector PMI, adjusted seasonally, dropped to 46.7 in Bahman, down sharply from 52.8 in Dey (December–January), marking its lowest level in seven months. Production in the sector fell to 47.3, continuing a downward trend for the sixth time this year. Contributing factors include severe energy shortages, with power and gas outages disrupting operations, alongside weak demand and soaring input costs driven by a sharp rise in exchange rates.

New orders in the industrial sector also hit a seven-month low, reflecting weakened consumer confidence amid economic uncertainty. Rising costs, fueled by currency fluctuations and sanctions-related pressures, have dampened demand, even as the year-end typically sees a seasonal uptick. Foreign sales and exports have similarly declined, further exacerbating the drop in orders.

The cost of raw materials and purchased supplies reached a 22-month high in Bahman—the steepest increase since Farvardin 1402 (March–April 2023). Imported materials, heavily impacted by exchange rate volatility, have driven up production costs, forcing businesses to raise prices. The PMI sub-index for output prices hit its highest level in 34 months, since Ordibehesht 1401 (April–May 2022). However, with consumer purchasing power eroded by inflation, demand remains subdued, squeezing company profit margins and pushing many firms toward closure.

Energy shortages have compounded these woes, halting production processes and forcing businesses to rely more heavily on dwindling warehouse stocks. Raw material inventories also declined at a faster pace in Bahman, as supply chain disruptions—stemming from currency allocation issues and limited availability—hindered restocking efforts.

While most indicators pointed downward, hiring activity offered a rare bright spot. The employment sub-index rose in Bahman, reaching its highest level in four months across the broader economy. However, this gain was overshadowed in the industrial sector, where employment contracted. Businesses, facing financial strain from rising costs and energy constraints, have scaled back production capacity and reduced hiring. Meanwhile, workers are increasingly reluctant to join manufacturing firms, as wages fail to keep pace with soaring living costs.

The PMI report paints a bleak picture of Iran’s economic trajectory. Persistent energy shortages, intensified sanctions, and currency depreciation have created a perfect storm for businesses. Foreign exchange pressures, driven by reduced oil revenues and heightened demand for dollars to settle export commitments, have triggered sharp currency fluctuations, further inflating import costs.

Despite the approach of the Persian New Year, when demand typically rises, new orders fell, signaling a lack of confidence among consumers and businesses alike. Analysts warn that without significant policy interventions—such as stabilizing the currency or addressing energy deficits—the recession could deepen in the coming months. Inflation is expected to climb further as production costs continue their upward spiral, potentially pushing more companies to the brink.

The Iran Chamber of Commerce report underscores the urgent need for structural reforms to halt the economic slide. For now, businesses and households brace for tougher times as the nation navigates an increasingly precarious economic landscape.