Armenia’s Economy ‘Drifting into Recession’

A statue symbolizing the dram, outside the Central Bank building in Yerevan. (Photo: Photolur)
A statue symbolizing the dram, outside the Central Bank building in Yerevan. (Photo: Photolur)

A statue symbolizing the dram, outside the Central Bank building in Yerevan. (Photo: Photolur)

YEREVAN (Arka)—A number of international financial organizations have already worsened their outlooks for economic growth in Armenia for 2015, which was badly affected by outside shocks.

Some organizations say the country’s economy will slow down and GDP growth will come close to zero, while others predict a recession.

According to the Armenian Central Bank’s latest report, economic growth in Armenia is predicted to be 0.4-2 percent in 2015 as the government budget it is slated to increase by 4.1 percent.

External shocks, such as the slowdown in Russia’s economy amid economic sanctions against the country and the devaluation of the dollar, have had adverse impacts on Armenia’s economic indicators in 2014.

For example, GDP growth was recorded at 3.4 percent while it was projected at 5.2 percent in the government budget.

There are factors that have hindered the country’s achievement of its projected GDP growth in 2015.

First of all, the country’s foreign trade amounted to $945.1 million in the first quarter of this year after shrinking 28 percent – both imports and exports fell 30.5 percent and 23 percent respectively.

It is worth mentioning that Armenia’s foreign trade contracted in the first three months because of the problems Armenian business people faced after the country joined the Eurasian Economic Union.

These problems were caused by changes in some customs procedures and formalization of export/import deals.

Armenia’s trade with the Eurasian Economic Union countries dropped 42.5 percent to $191.5 million and trade with Russia fell 41.2 percent.

Its trade with the European Union member countries and other countries fell as well – by 31.7 percent and 18.2 percent respectively.

In addition to trade decline, the inflow of money transfers dwindled striking hard at Armenia’s economic growth, since they are among the key factors propelling the country’s economic growth.

The share of money transfers in GDP is approximately 16-17 percent. This means money transfers to Armenia reduced by 37.6 percent to $206.3 million in the first quarter of 2015.

The bulk of money transfers to Armenia come from Russia – about 69.9 percent of the aggregate individual money transfers.

Therefore, the fall in individual transfers was due to the 45 percent contraction in Russian money transfers caused by the devaluation of the Russian ruble.

According to the central bank’s forecast, individual money transfers will shrink 30 percent in 2015.

The contraction of the dwindling stream of foreign currencies to the country as transfers and from exports threatens devaluation of the national currency and lays the ground for an increase in inflation.

In March 2015, Armenia’s 12-month inflation figure exceeded the projected range (2.5 to 5.5 percent) reaching 5.8 percent as the dram devaluated by 15.3 percent.

As for other economic indicators, the construction sector accounted for slight growth as domestic trade turnover fell 6.3 percent. Instead, industrial output grew 2 percent and agriculture 4.5 percent.

All this resulted in weak economic activity.

It is worth noting that Russia’s economy, with which Armenia is deeply integrated, ended the first quarter in the following fallen indicators: real salary and population income, retail trade and services, investments, construction and industry. Russia’s economy declined 3 percent.

In Georgia, according to preliminary figures, GDP grew 3.2 percent over the first quarter of this year instead of the projected 5 percent.

However, the complicated economic situation created by the devaluation of the Georgian lari forced the government to revise the projected economic growth to 2 percent.

Azerbaijan, like Georgia and Armenia, had its economy affected by the devaluation of its national currency, by low oil prices and by adverse impacts from Russia on transfers and trade. However, GDP in Azerbaijan grew 5.3 percent in the first quarter.

Regardless of pessimistic outlooks and bad macroeconomic indicators of the first quarter, the Armenian economy ministry says it sees no grounds for revising the projected economic growth indicator.

This optimism is grounded on certain prospects in the real sector, particularly in the mining industry.

Economy Minister Karen Chshmarityan said Armenia’s mining industry grew 27.7 percent.

Besides, the economy ministry relies on the expansionary measures taken by the government in the last four months, such as changes in taxation.

The global recession in 2009 and the situation in 2014 showed again how vulnerable the Armenian economy is and how much it depends on outside shocks, which reduce foreign investments, transfers and foreign trade that are key propellers of the economy.

The government should be oriented to a long-term strategy and an economy development program aimed at ensuring stability to the national currency and the financial sector, intensifying the inflow of investments and developing small and mid-scale businesses.


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One Comment;

  1. April 24 @ 24/7/365 said:

    Putting all our eggs in one basket and having Russia carry around the basket for us is a sure receipt for an economical catastrophe.