Download Armenia`s Economy Drifting Into Recession Amid Dramatic Decline

Armenia's Economy Drifting Into Recession Amid
Dramatic Decline In Foreign Trade And Transfers
ARKA - 14/5/2014
YEREVAN - Today many international financial organizations have already
worsened their outlooks for economic growth in Armenia in 2015, which was
badly affected by outside shocks.
Some organizations say the country's economy will slow down and GDP growth
will come close to zero, other organizations predict a recession and some
forecast even decline.
According to the central bank's latest report, economic growth in Armenia
is predicted to be 0.4-2% in 2015 as in the government budget it is
projected at 4.1%.
The shocks that came from the outside, such as slowdown in Russia's economy
amid economic sanctions against the country and devaluation of the dollar,
had adverse impacts on Armenia's economic indicators in 2014.
For example, GDP growth was recorded at 3.4% while it was projected at 5.2%
in the government budget.
Remarkable is that Armenia fails to ensure the economic growth indicator
projected in the government budget, and there are factors that hinder the
achievement of the projected GDP growth in 2015.
First of all, this is the country's foreign trade, which amounted to $945.1
million in the first quarter of this year after shrinking 28% - both
imports and exports fell 30.5% and 23% respectively.
It is worth to say that Armenia's foreign trade contracted in the first
three months because of the problems Armenian business people faced after
the country joined the Eurasian Economic Union.
There problems were caused by changes in some customs procedures and
formalization of export/import deals.
Armenia's trade with the Eurasian Economic Union countries dropped 42.5% to
$191.5 million and trade with Russia fell 41.2%.
Its trade with the European Union member countries and other countries fell
as well - by 31.7% and 18.2% respectively.
In addition to trade decline, the inflow of money transfers dwindled
striking hard at Armenia's economic growth, since they are among the
key factors propelling the country's economic growth.
The share of money transfers in GDP is approximately 16-17%. This means
money transfers to Armenia reduced by 37.6% to $206.3 million in the 1st Q
2015.
The bulk of money transfers to Armenia come from Russia - about 69.9% of
the aggregate individual money transfers.
Therefore, the fall in individual transfers was due to the 45% contraction
in Russian money transfers caused by the devaluation of the Russian ruble.
According to the central bank's forecast, individuals' money transfers will
shrink 30% in 2015.
The contraction of the dwindling stream of foreign currencies to the
country as transfers and from exports threatens with devaluation to the
national currency and lays grounds for inflation increase.
In March 2015, the 12-month inflation in the country went out of the
projected range (4%+-1.5) reaching 5.8% as the dram devaluated by 15.3%.
As for other economic indicators, the construction sector accounted for a
slight, 0.8-percent growth as domestic trade turnover fell 6.3%.
Instead, industrial output grew 2% and agriculture 4.5%.
All this resulted in a weak economic activity, which was recorded at 2.5%
in the 1st Q 2015.
Decrease in macroeconomic indicators and financial shocks that emerged by
the end of 2014 affected also the banking sector.
Banks' assets and liabilities reduced in the 1st Q 2015. Credit exposure to
the economy reduced by 5% as the share of overdue loans rose 14% and banks'
profits dropped 75%.
It is worth to say that Russia's economy, in which Armenia is deeply
integrated, ended the first quarter in the following fallen indicators:
real salary and population income, retail trade and services, investments,
construction and industry. Russia's economy declined 3%.
In Georgia, according to preliminary figures, GDP grew 3.2% over the first
quarter of this year instead of the projected 5%.
However, the complicated economic situation created by devaluation of the
Georgian lari, forced the government to revise the projected economic
growth to 2%.
Azerbaijan, like Georgia and Armenia, had its economy affected by
devaluation of its national currency, by low oil prices and by adverse
impacts from Russia on transfers and trade. However, GDP in Azerbaijan
grew 5.3% in the first quarter.
Regardless of pessimistic outlooks and bad macroeconomic indicators of the
first quarter, the Armenian economy ministry sees no grounds for revising
the projected economic growth indicator.
This optimism is grounded on certain prospects in the real sector,
particularly in mining industry.
Economy Minister Karen Chshmarityan said growth in diamond output, Tekhut
Copper and Molybdenum Combine's output and GeoProMining's output as well
some rally in particular areas offset the decline in the foreign trade.
Indeed, Armenia's mining industry grew 27.7%.
Besides, the economy ministry relies on the expansionary measures taken by
the government in the last four months, for example changes in taxation.
The steps taken by the government were aimed at correcting indicators and
making things smoother.
The global recession in 2009 and the situation in 2014 showed again how
vulnerable the Armenian economy is and how much it depends on outside
shocks, which reduce foreign investments, transfers and foreign trade that
are key propellers of economy.
The government should be oriented to a long-term strategy and an economy
development program aimed at ensuring stability to the national currency
and the financial sector, intensifying the inflow of investments and
developing small and mid-scale businesses.
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