Despite a more optimistic economic outlook that has been presented by Armenian government officials of late, the country’s economy continued to decline in July amid a deepening fallout from the global recession, showing a 18.5 percent Gross Domestic Product contraction in the seven months of 2009.
The country’s GDP shrank by 16.3 percent in the first half of this year, with the government warning that its full-year contraction could hit a 20 percent rate.
Earlier this month, however, Prime Minister Tigran Sarkisian sounded more upbeat on the prospects of the economy as he said that the anti-crisis measures taken by the government should result in a slowdown of the decline later this year that would ultimately have made only 12 percent annually. The premier said the government also expected the Armenian economy to grow by a modest 1 percent in 2010.
The current economy decline follows six years of robust growth in the Armenian economy when it expanded at a double-digit rate largely due to large-scale housing construction projects.
The global financial crisis resulted in a dramatic reduction of investments and other money transfers that had serviced the booming construction and other sectors of the economy.
The volume of construction work carried out in the country shrank by 55.5 percent in the seven months of this year, significantly contributing to the total GDP fall. This is by one percent worse than the index posted for January-June.
Economist Ara Nranian, who is a member of the Armenian Revolutionary Federation (Dashnaktsutyun) faction in parliament, says “nothing unexpected has happened considering the contents and branch structure of the economic decline.”
“Construction is one of the main causes of the decline. This again shows that we have serious problems in terms of our economic structure and policies. This crisis has only revealed and accentuated the scale of problems that we’ve had,” Nranian told RFE/RL.
Earlier this month, Urban Development Minister Vartan Vartanian argued that the dramatic decline in the construction sector would ease in the second half of this year thanks to wide-ranging measures taken by the government.
“There is quite a bit of [construction] activity in the second half,” Vartanian told RFE/RL. “The government has taken all necessary measures, and I am sure that quite positive results will be observed in the second half, both in [private] housing construction and projects financed from the state budget,” said Vartanian.
The construction sector has been a focal point of government efforts to alleviate the consequences of the crisis. Last April, the government approved 20 billion drams ($55 million) in loan guarantees to private developers struggling to complete their housing projects. Five construction firms have reportedly received such guarantees since then.
The government also plans to spend just over one quarter of a $500 million anti-crisis loan provided by Russia on housing construction in Armenia’s northern regions still reeling from the devastating 1988 earthquake. Another $33 million portion of the loan is to be channeled into a recently established state mortgage fund tasked with providing relatively cheap housing loans to the population.