The data show the country’s Gross Domestic Product contracting by 16.3 percent in the first half of this year. The Armenian economy contracted by 15.7 percent in January-May 2009. It was growing at double-digit rates as recently as in September, just before the outbreak of the global financial crisis.
The economy was primarily dragged down by the construction slump, which was down by as much as 54.5 percent in January-June from the same period of 2008. The more-than-threefold month-on-month growth reported in Armenia’s once booming construction sector in June did not resulted in a dramatic reversal of macroeconomic statistics.
Prime Minister Tigran Sargsyan told the Kapital business daily that the deepening of the economic decline in the first half of the year was not an unexpected development for the government.
“We have said before the publication of the figures that a high economic growth was registered during the six months of last year, as a result of which the decline during the same period of this year would be steep,” said Sargsyan.
Earlier this month Sargsyan said that he saw at least three scenarios of developments for the economy in 2009 and did not exclude that the economy could contract by as much as 20 percent this year.
“From now on, we need to consider at least three scenarios of developments,” Sargsyan said during an international economic forum in Yerevan on July 7. “One is that we will have a [GDP] decline of 9.5 percent; the second one is that it will make up 16 percent; and the third one is that we will have a 20 percent decline.”
According to former Central Bank Chairman Bagrat Asatrian, the continuing decline in Armenia’s economy reveals the ineffectiveness of government actions.
“Today we bear the consequences of the failure of the government to make decisions in the middle of last year. The government must apologize that we now live by a program that envisages a 9 percent economic growth,” Asatrian told RFE/RL.
The economist, however, said the economic decline could slow down by the end of the year.
“One of the factors is the inflow of large financial means, which will somewhat redress the situation in construction,” said Asatrian, predicting an overall economic decline in 2009 at 13-14 percent.
According to the data reported for the first six months of 2009, imports exceeded exports in Armenia almost five times and the negative balance of trade totaled more than $1 billion.
Asatrian called the situation ‘alarming’, considering the sharp increase of Armenia’s foreign debt in the past several months.
“As a result of this year we will have a foreign debt that will exceed our exports about three or four times. This is already a terrible thing. In fact, we are supposed to clear our debts by borrowing. We may borrow from foreign countries or from our compatriots abroad in the form of cash remittances. These remittances, however, are not money that we earn,” said Asatrian.
Artur Stepanian, head of the Central Bank’s Monetary Policy Department, said that forecasts about a tangible reduction of cash remittances were made still last year.
“At the end of last year and at the beginning of this year we assessed that a 30 percent reduction in cash remittances would take place. The forecasts that we made about seven months ago have come true,” he said.
Stepanian also said that a large decrease in direct capital investments has caused steep declines in both construction and industry.
“The economic has hit the bottom and after staying at this level for a month or two it will enter the stage of recovery,” Stepanian said.