DUBAI - Iran's economy contracted by 1.9 percent in 2012 and is expected to shrink by 1.3 percent this year as it reels from the impact of Western sanctions, the International Monetary Fund said Tuesday.



The economy of the Islamic republic is, however, forecast to grow next year by 1.1 percent, the IMF said in its annual World Economic Outlook.



The IMF said the "macroeconomic environment is likely to remain difficult, given the sharp depreciation of the currency and adverse external conditions, which would sustain inflation at relatively high levels."



A Western ban on Iranian oil exports, which came into effect in July, hit the country's economy badly.



Oil Minister Rostam Qasemi acknowledged in January that Iran's oil exports have plummeted by 40 percent in the preceding nine months because of tough Western sanctions.



According to the Organization of Petroleum Exporting Countries and the International Energy Agency, Iranian crude exports have fallen from about 2.4 million barrels per day (mbpd) in late 2011 to around 1.0 mbpd by end 2012.



The overall amount Iran is pumping out of its oil fields was estimated in January to have fallen by some 25 percent to 3.0 mbpd -- its lowest level since the Iran-Iraq war in the 1980s.



Before the ban, European countries imported about 20 percent of Tehran's oil exports.



The international sanctions targeting Iran aim to choke the country's revenues used for its disputed nuclear program, and to force it to the negotiating table.



Iran insists the program is for peaceful purposes only, and denies Western and Israeli allegations it wants to develop nuclear weapons.



It is defiantly forging ahead with uranium enrichment and says it will withstand Western pressure on the matter. — AFP