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Armenia’s economic recovery slowed down in the first quarter of this year, falling well short of a 4.6 percent growth target set by the authorities for 2011, according to official statistics released on Thursday.


Data from the National Statistical Service (NSS) show Gross Domestic Product increasing by 1.2 percent in this period, down from 2.6 percent reported in 2010.

The Armenian government will play down the first-quarter macroeconomic performance, having repeatedly stated that economic activity in the country will accelerate in the following months.

The government figures suggest that economic growth was significantly suppressed by the underperforming construction and agriculture sectors.

The Armenian construction industry, which was hit hardest by the 2009 global recession, contracted by 8 percent year on year from January-March. It was a key engine of the country’s double-digit growth in 2001-2007.

The NSS recorded a 1.4 percent drop in agricultural output. The sector shrunk dramatically last year mainly due to highly unfavorable weather conditions. The government predicted earlier this year that it will likely expand by 10 percent in 2011. Recent hailstorms across Armenia called that forecast into question, however.

As was the case in 2010, industry was the main driving force behind renewed growth. First-quarter industrial production was up by about 5 percent, generating just over one-third of GDP. NSS data for April and May show it soaring by 11 percent and 25 percent respectively.

Economy Minister Tigran Davtian said late last week that industrial output will rise by over 10 percent in the first half of 2011. He said the government therefore stands by its full-year growth projections shared by the International Monetary Fund and the World Bank.

The industry has been greatly helped by the increased international prices of copper and other base metals, Armenia’s number one export item. Davtian spoke of strong gains in other manufacturing sectors as well.

In a further indication of the ongoing recovery, nationwide retail sales grew by 2.8 percent in the first quarter. The NSS also registered a 6.2 percent increase in the volume of other services.

Both the IMF and the World Bank believe that the growth will be sustainable only if the Armenian authorities follow through on sweeping tax and other structural reforms. In a December 2010 report, the IMF said “the oligopolistic structure” of the local private sector is a key impediment to Armenia’s economic development along with the closed borders with Azerbaijan and Turkey.

The authorities and Prime Minister Tigran Sarkisian in particular have pledged to improve the country’s flawed business environment on numerous occasions. Their critics dismiss these pledges.
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