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Armenia mourns its economy two years in a row

14 May 2015 22:05 (UTC+04:00)
Armenia mourns its economy two years in a row

By Mushvig Mehdiyev

Armenia is gradually losing its economic columns due to multi-sided recessions in many strategic and significant economic fields. The economy has failed to meet the state's predefined economic growth rate as announced in the state budget for two years in a row now.

Several international organizations have already lowered their economic growth forecasts for Armenia in 2015 in view of its economic decline and ties to Russia as an economic powerhouse.

Armenia's economic deceleration: GDP rate drop close to zero and recession, have made experts fear a total collapse.

Internal factors

The subsequent stagnation of the economy due to the spillover of Russia's crisis and the dollar's rise against the dram have all taken its tolls on Armenia's battered economy last year. The 2014 data showed that the GDP growth in Armenia stood at 3.4 percent against the forecasted 5.2 percent rate. Thus, the economy in the post-Soviet country faced a serious fall two years in a row.

This year, domestic trade dropped by 28 percent, import went down by 30.5 percent and export fell by 23 percent. The internal trade suffered a strong blow in the first three months of 2015, following Armenia's integration into the Eurasian Economic Union, according to statistic data.

The trade turnover with European countries decreased by 42.5 percent while the same relations with Russia saw a 41.2 percent drop, proving serious deterioration in Armenia's economic trend.

The overall economic activity in Armenia since the year's beginning to date has been calculated at 2.5 percent.

External determinants

Remittances sent from overseas play a crucial role in Armenia's economy, sharing a significant bulk in the GDP - nearly 16-17 percent. A fall in money transfers by 37.6 percent to $206.3 million during Q1 of 2015 proves the seriousness of Armenia's economic challenges.

Nearly 69.9 percent of the overall private money sent from abroad falls on Armenian migrants working in Russia, and therefore Russia' slowdown deeply affected Armenia. Ability of Armenia's workforce abroad to send money back dropped by 30 percent.

A fall in the money inflow and exports have put the national currency at great risk - the dram's devaluation contributed inflation. In March, 2015, the inflation rate exceeded the maximum admissible limit of 5.5 percent and reached 5.8 percent alongside the dram's 15.3 percent lose in its share.

Situation in the region

Armenia's neighbor Georgia, according to preliminary data, has seen a 3.2 percent growth in its GDP against the pre-defined 5 percent rate. The government announced its plans to lower the economic growth forecast to 2 percent due to difficulties with its national currency - the lari.

Devaluation of the national currency, the manat, lower oil prices and the spillover of economic crisis in Russia conditioned the 5.3 percent GDP growth of another neighboring country - Azerbaijan.

What to expect?

Taking into account the negative forecasts issued by the Fitch, Moody's, the World Bank and other organizations vis a vis Armenia's economy, healing such economic scars will take some time, especially since Russia is not out of the tunnel just yet.

Armenia's economy ministry has come to be optimistic, predicting a soonest escape from the existing hassle. It claims that its growing industrial production - the mining industry saw a surge of 27.7 percent and it would remedy the drastic fall of its domestic trade.

However, 2009 financial crisis and the hardship started in late 2014 have once again proven that the fragile Armenian economy depends strongly on the regional developments as reflected by falling foreign investments, remittances, domestic trade - the main engines driving economic growth.

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Follow Mushvig Mehdiyev on Twitter: @Mushviggo

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