By Emil Danielyan
Armenia’s robust growth looks set to slow down to single digits this year in a further indication of the worldwide economic downturn’s growing impact on its economy.
Official macroeconomic statistics for the first eleven months of 2008 show Gross Domestic Product increasing by 7.2 percent year on year. They also herald the end of a construction boom that has significantly sped up country’s economic recovery in recent years.
The Armenian economy was on track to expand at a double-digit rate for the seventh consecutive year when stock markets in the United States, Europe and Russia began collapsing in September. Economic activity in the country shrunk considerably in the following months, even though local banks remained largely unaffected by the financial meltdown. According to the National Statistical Service (NSS), GDP in November was down by as much as 30 percent from the October level.
The NSS data show that retail trade and other services were the main contributors to the GDP growth rate registered in January-November 2008. Construction, another key driving force of the double-digit growth and the single largest sector of the economy in this period, expanded by only 1.6 percent, down from 12 percent registered in the first half of the year. The sector grew by 20 percent in 2007.
The construction boom, largely concentrated in the center of Yerevan, has resulted from skyrocketing real estate prices and strong demand in expensive housing and office space. Well-to-do Armenians living abroad, notably in Russia, are believed to have been among the main buyers of those properties.
Economists say the global financial and economic crisis will inevitably reduce cash inflows from them and, more importantly, a much a larger number of migrant workers supporting their families in Armenia. A large part of the country’s population is dependent on their remittances.
Another negative consequence of the crisis has been a sharp fall in the international prices of non-ferrous metals, Armenia’s number one export item. Hundreds of employees of Armenian mining companies have already been laid off or sent on indefinite leave as a result. The country’s two largest chemical enterprises have suspended their operations and are facing an uncertain future for the same reason.
The Armenian government says it can mitigate knock-on effects of the crisis by launching large-scale infrastructure projects and giving local firms better access to cheap credit. It is seeking hundreds of millions of dollars in loans and assistance from foreign governments and lending institutions.
The government hopes to obtain $800 million from the World Bank alone. More than a quarter of the sum would be channeled into small and medium-sized businesses in the form of low-interest loans. A World Bank official said earlier this month that Yerevan is well placed to secure large-scale assistance.
Nevertheless, opposition politicians and economic dismiss the planned government measures as inadequate. The main opposition Armenian National Congress (HAK) has criticized the government for not adjusting the state budget for 2009 that was approved by parliament last month. HAK representatives argue that the budgets does not envisage concrete anti-crisis measures and set aside funding for them.
Also, Hrant Bagratian, a former prime minister and a senior HAK member, accused the Central Bank of Armenia (CBA) this week of artificially shoring up the national currency, the dram, by selling large amounts of hard currency in the local market. He said the dram’s moderate depreciation would give a major boost to struggling manufacturers.