14 hours ago
Iraq's post-war economy slows as consumption drops
Shafaq News/ Iraq is facing a visible economic slowdown amid the Iran-Israel conflict, with consumer spending declining, confidence in the dinar weakening, and major retailers reporting reduced foot traffic, according to analysts and residents.
The downturn is particularly evident in cooperative hypermarkets, where rising prices have deterred purchases across income levels, and retailers have recorded falling sales and shrinking customer turnout in both urban and suburban areas.
'This is a classic case of stagflation,' economist Ali Daddoush told Shafaq News. 'Government cash outflows—mainly through employee compensation—are rising, but actual consumer activity remains subdued due to uncertainty and low trust in the national currency.'
He noted that employee compensation rose from 13.3 trillion dinars ($10.2B) in Q1 2024 to 15.3 trillion ($11.7B) in Q1 2025. However, the increase has not stimulated market activity. 'We're seeing a shift toward dollar speculation rather than investment or consumption,' Daddoush explained, warning that this behavior further destabilizes the dinar and inflates import prices.
He cautioned that excess liquidity could compel the Central Bank to issue more currency, fueling demand for dollars in the parallel market and deepening currency depreciation.
To contain the crisis, Daddoush recommended flexible monetary measures such as open-market operations to absorb surplus dinar liquidity and reintroducing attractive short-term deposit certificates. 'We also need smart demand stimulation—temporary food vouchers, targeted subsidies, and tax deferrals—to boost local spending.'
Economic anxiety is mounting, particularly in Baghdad, where households are cutting back amid fears of further escalation.
'The sense of financial instability is widespread,' economist Ahmed Eid told Shafaq News. 'Continuous price hikes, currency volatility, and weak fiscal management have eroded purchasing power and pushed families into defensive spending.'
Eid argued that this trend not only highlights Iraq's economic fragility but also reflects structural dysfunction. 'This behavior slows the markets and weakens Iraq's consumption-driven economy,' he emphasized, urging stronger income protections, social safety expansion, and credible reforms to restore trust.
Cooperative hypermarkets—once billed as affordable alternatives—have seen customer numbers plummet over the past two months. According to the Ministry of Trade, each branch had recorded sales of 700 million dinars in its early operational phase, though no recent figures have been released.
'My monthly salary no longer covers our needs,' said Fatima Abdul-Hussein, a 35-year-old government employee. 'Even with my husband's income, we can only afford the basics.'
Another resident, Riyah al-Hassani, said wages no longer match surging food costs. 'Many products that rose in price during the war have never come down,' he observed.
'The same item can jump in price within days at the same store,' added consumer Laheeb Abdul-Ghani. 'It shows how unstable the market has become.'
The Ministry of Trade insists it has sufficient reserves of essential goods and is ready to meet demand nationwide, including in the Kurdistan Region. Officials acknowledged, however, that some distribution delays may result from additional quality inspections.
Still, such statements have done little to ease public concern. The conflict has prompted households to limit non-essential spending and stockpile cash in anticipation of potential emergencies.
'The longer this war continues, the greater the economic toll,' said Abdul-Karim al-Zamili, a Baghdad resident. 'People are holding back. We're bracing for more fallout.'
Najah Abdullah, another shopper, echoed that sentiment. 'Iraq is heavily import-dependent. It's smarter to stick to essentials right now.'
Iran remains one of Iraq's primary non-oil trade partners, supplying roughly $20B in goods annually. Iranian customs data shows exports to Iraq fell to $1.5B over the past two months—early signs of how the conflict is disrupting bilateral trade and further pressuring Iraq's already fragile economy.
