Iran’s industrial sector is showing mounting signs of distress as business expectations deteriorate and production dynamics weaken.
The latest survey of purchasing managers signals not merely a cyclical slowdown but a structural shift in sentiment among industrial firms. The most alarming development is the sharp decline in managers’ expectations for output in the coming month, which has fallen to its lowest level since the survey began in 2018.
This collapse in expectations carries broader implications than a temporary drop in activity. It reflects a deepening uncertainty that is reshaping firm behavior across the manufacturing landscape.
When industrial managers anticipate weaker demand and rising costs simultaneously, defensive strategies tend to prevail. Companies reduce production volumes, postpone raw material purchases, delay expansion plans and, in some cases, reconsider the viability of continuing operations at current capacity. Investment, once viewed as a path to growth, increasingly appears as an additional risk.
The survey results indicate that Iran’s economy has remained in contractionary territory for nearly two years. Output levels have slowed noticeably, while new customer orders have fallen to one of their lowest readings in recent years, signaling weak effective demand. This trend is consistent with declining household purchasing power, persistent uncertainty about economic conditions and the postponement of consumption and investment decisions.
At the same time, cost pressures have intensified. The price index for purchased raw materials has reached a multi-year high, while selling prices have also risen significantly.
Stagflationary Environment
The coexistence of declining production and rising costs points to a deepening stagflationary environment in the real economy. Firms face shrinking margins and limited pricing power, reinforcing cautious decision-making.
Labor market indicators mirror this caution. Businesses are either freezing recruitment or reducing staff levels as part of cost-control strategies. Such adjustments, while rational at the firm level, risk amplifying macroeconomic weakness by reducing income growth and dampening domestic demand.
Beyond immediate production trends, a more structural concern is emerging: the erosion of planning horizons. Industrial activity is inherently long term, relying on multi-year expectations regarding exchange rates, trade policies, regulatory stability and market demand.
When the planning horizon narrows to a few months, strategic decisions shift from expansion to survival. Evidence of this shift can be observed in declining investment in technological upgrading, with many firms opting to maintain existing equipment rather than modernize production lines.
In the short run, postponing modernization may contain costs. Over the medium term, however, it erodes productivity, increases waste and weakens competitiveness. Firms that fall behind in technological renewal often struggle to regain market share even when economic conditions improve.
Export markets are also vulnerable to this instability. International buyers depend on reliable supply chains, stable pricing and predictable delivery schedules—conditions that become difficult to sustain amid volatility in costs, infrastructure disruptions and financing constraints.
“Freeze” in Decision-Making
Another critical dimension is policy predictability. Industrial stakeholders emphasize that investment decisions depend fundamentally on stable macroeconomic and regulatory conditions.
Persistent volatility in exchange rate policy, trade regulations and financing availability reinforces uncertainty and contributes to what some analysts describe as a “freeze” in decision-making. Capital remains idle not because opportunities are absent, but because risks are perceived as unquantifiable.
The broader economic consequences are significant. Industrial contraction does not remain confined to factories; it affects employment, household income and aggregate demand.
Reduced production capacity leads to fewer job opportunities, which in turn suppresses consumption and further weakens industrial output. This feedback loop risks entrenching a prolonged slowdown.
Recent survey evidence suggests that many industrial managers expect conditions to worsen in the near term. Temporary disruptions to connectivity and infrastructure, along with liquidity shortages and regulatory instability, have compounded existing pressures. While some subsectors perform marginally better than others, no major segment currently signals robust recovery.
The central policy challenge therefore lies in restoring confidence rather than merely stimulating activity. Predictability in economic governance, improved access to working capital and stabilization of key macroeconomic variables are widely viewed as prerequisites for reversing the current trajectory. Without such measures, the erosion of investment capacity could become the defining feature of Iran’s industrial outlook.
The latest data offer more than a statistical warning. They reflect a shift in perception among those directly engaged in production. If expectations continue to deteriorate, the risk is not only cyclical stagnation but a gradual weakening of the country’s industrial base itself.
