YEREVAN (RFE/RL)–A sharp decline in construction dragged Armenia deeper into recession last month and caused its first-quarter Gross Domestic Product to shrink by 6.1 percent, according to official statistics released on Monday.
The Armenian economy contracted by 3.7 percent year on year during the first two months of this year amid a deepening fallout from the global financial and economic crisis. The latest macroeconomic data from the National Statistical Service show that the decline accelerated in March primarily because of an almost 22 percent drop in the volume of construction work carried out in the country in the first quarter of the year. It was down by only 1.5 percent in January-February 2009.
Also contracting were all other sectors the economy except retail trade. In particular, industrial output fell by 9.5 percent, generating about 29 percent of first-quarter GDP worth 465.5 billion drams ($1.4 billion). With construction and agricultural activities traditionally gaining momentum after winter, that proportion will decrease in the following months.
Industry for the first time contributed less to the economy than construction in 2008. That fact reflected a construction boom that has been a major driving force behind Armenia’s robust economic growth in recent years. The construction sector stopped growing and began contracting last fall.
The downturn is particularly visible in Yerevan where work at many of the dozens of construction sites has ground to a halt. The risk-averse Armenian banks are reportedly reluctant to make new loans to construction companies.
In an effort to boost the sector, the Armenian government approved on April 9 20 billion drams ($54 million) in loan guarantees for local construction firms lacking funds to complete their projects. The authorities also hope to stimulate the local housing market with a new mortgage lending fund set up by the Armenian Central Bank this month. The Bank has contributed 5 billion drams to the fund and says external loans and funding will raise its authorized capital to 30 billion drams by the end of the year.