22.05.2026
Iran’s economy deteriorated sharply in 2025 as conflict, sanctions, social unrest, currency depreciation, energy and water shortages, and disruptions to trade and oil exports weighed on activity. The outlook for 2026–2027 is highly uncertain and depends heavily on the duration of conflict, access to oil export routes, sanctions enforcement and domestic stability. Inflation remains extremely high, with food prices under severe pressure after exchange-rate depreciation and the scaling back of preferential foreign exchange for essential imports. Fiscal pressures are rising as oil revenue weakens and social-support needs increase, while the external position has become much more fragile despite continued oil-related foreign-exchange inflows.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | -2.7 | -6.1 | 1.5 |
| Inflation (%, yoy) | 49.1 | 55.0 | 38.0 |
| Employment rate (% of working-age population, 15+) | 37.5 | 37.0 | 37.2 |
| Fiscal balance (% of GDP) | -4.4 | -5.5 | -4.8 |
| Gross public debt (% of GDP) | 31.3 | 35.0 | 36.5 |
| Current account balance (% of GDP) | 0.2 | -1.5 | 0.5 |
Output contracts under conflict and sanctions pressure
Iran’s real GDP is estimated to have contracted by 2.7% in 2025, after growth of 3.7% in 2024. Even before the latest escalation, activity had weakened: non-oil GDP contracted in the first half of the Iranian year, while agriculture was hit by water shortages and non-oil industries by gas and electricity outages. Conflict, strikes, internet disruptions, weaker investor confidence and trade disruptions further reduced activity.
Growth is expected to remain very weak in 2026, with the IMF projecting a sharp contraction. Oil exports and production are vulnerable to sanctions, shipping restrictions, insurance constraints and disruption around the Strait of Hormuz. A partial recovery is possible in 2027 if conflict intensity falls and trade routes normalise, but output would still remain far below its pre-shock path.
Inflation remains extremely high
Inflation is estimated at around 49% in 2025 and is expected to remain extremely high in 2026. Currency depreciation, import shortages, high food prices and the scaling back of preferential exchange-rate allocations for essential goods have all intensified price pressures. Food inflation is especially severe, raising welfare and food-security risks for lower-income households.
Inflation could ease in 2027 if exchange-rate pressures moderate and trade channels stabilise, but it is likely to remain very high. Monetary financing of the deficit, limited access to foreign exchange, weak confidence and further sanctions or conflict shocks could keep inflation entrenched.
Fiscal pressures increase
The fiscal deficit widened to an estimated 4.4% of GDP in 2025 and is expected to remain under pressure in 2026–2027. Lower oil revenues, a weaker tax base, higher security costs and expanding social-support needs are all weighing on the budget. The government has relied on domestic bond issuance, sovereign-wealth-fund withdrawals and monetary financing, which can add to inflationary pressure.
Public debt remains moderate by international comparison, but the headline ratio understates fiscal stress. The main risks come from limited market access, restricted oil revenues, quasi-fiscal obligations, exchange-rate losses and the inflationary cost of domestic financing.
External position becomes more fragile
The current account surplus narrowed sharply to around 0.2% of GDP in 2025 as exports weakened and access to foreign exchange became more constrained. Oil exports remain the key external source of support, but they are exposed to sanctions, shipping disruptions, insurance restrictions and dependence on a narrow group of buyers.
The current account could move into deficit in 2026 if oil exports fall further and import costs rise. A partial improvement is possible in 2027 if oil shipments normalise and imports remain compressed. However, the external position is fragile: it reflects restricted imports and financial isolation rather than a healthy export base.
Overall outlook
Iran’s outlook is highly uncertain and tilted to the downside. A short-lived conflict and partial normalisation of trade could allow a modest rebound in 2027, but prolonged hostilities, deeper sanctions, damage to oil or transport infrastructure, or renewed domestic unrest would push the economy into a more severe and persistent contraction. The main challenges are restoring macroeconomic stability, containing inflation, preserving access to essential imports, reducing dependence on oil exports and rebuilding confidence in a sanctions-constrained environment.
Sources:
World Bank, Iran, Islamic Republic Macro Poverty Outlook, April 2026.
International Monetary Fund, World Economic Outlook, April 2026.
International Monetary Fund, World Economic Outlook Statistical Appendix, April 2026.
Central Bank of Iran, National Accounts and Inflation Statistics, 2025–2026.
World Bank, Middle East, North Africa, Afghanistan, and Pakistan Macro Poverty Outlook, April 2026.
