The dramatic contraction of Armenia’s economy continued to ease last month, with Gross Domestic Product (GDP) shrinking by 16 percent in the first eleven months of this year, according to official statistics released on Monday.
The year-on-year figure reported by the National Statistics Service (NSS) is down from the peak decline of 18.5 percent registered in January-July 2009. The GDP drop, one of the steepest in the world, began easing in August, a process that accelerated in October and November.
This is due, in large measure, to the fact that the Armenian economy was already adversely affected by the global financial crisis in the fourth quarter of last year after nine months of double-digit expansion.
The Armenian government now expects further recovery in December and a full-year negative growth rate of 15 percent. It says economic growth will get back into positive territory but stand at a modest 1.2 percent next year.
The International Monetary Fund and the World Bank have made similar forecasts. According to IMF projections, Armenian growth will accelerate to 3 percent in 2011 and gradually reach 4.5 percent in 2014. The Armenian economy expanded by an average of 12 percent from 2002 through 2007.
As was the case in the previous months, it was primarily dragged down by a sharp fall in construction in January-November 2009. The sector shrunk by 38.4 percent but still generated almost 18 percent of GDP.
The country’s macroeconomic performance during this period was also seriously affected by an almost 10 percent fall in industrial output that accounted for another 21 percent of GDP. The NSS registered far more modest losses in the other sectors.
Economists believe heavy dependence on construction is the main reason why Armenia is among countries hardest hit by the global recession. Accordingly, they stress the importance of diversifying its economy hamstrung by closed borders and high transportation costs.
Speaking at a news conference last week, the head of the World Bank office in Yerevan, Aristomene Varoudakis, reiterated the bank’s calls for the Armenian authorities to improve the country’s business environment, break up “oligopolies” and crack tackle corruption in earnest. “It mostly requires political will to make the links that exist between some of the oligopolies and some public officials transparent and to eliminate the situations of conflict of interest that currently exist,” he said.
Prime Minister Tigran Sarkisian has publicly acknowledged the need for such reforms. In a speech in parliament on November 18, he vowed to markedly improve the investment climate, combat tax evasion by the rich and strengthen the broader rule of law.
Sarkisian’s reform record has been patchy so far, with government-linked wealthy businessmen continuing to enjoy a de facto monopoly on lucrative forms of economic activity. Also, local anti-graft watchdogs see no reduction in the scale of bribery, nepotism and other forms of government corruption.
The former governor of the Armenian Central Bank successfully cracked down, with President Serzh Sarkisian’s help, on rampant corruption within Armenia’s customs service shortly after being appointed prime minister in April 2008. However, some entrepreneurs regularly dealing with the service say corrupt practices there have been on the rise this year.