Preliminary macroeconomic data by the National Statistics Service (NSS) show the country’s Gross Domestic Product tumbling by 15.7 percent to 839.4 billion drams ($2.44 billion) in the first five months of this year. The Armenian economy contracted by 9.7 percent in January-April 2009. It was growing at double-digit rates as recently as in September, just before the outbreak of the global financial crisis.
As was the case in previous months, the economy was primarily dragged down by the construction slump. The total volume of construction work carried out in Armenia was down by as much as 56 percent in January-May from the same period of 2008.
The sector’s decline continued to deepen in May despite government efforts to aid local construction firms that have been hit particularly hard by the crisis. That included loan guarantees, tax rebates and the establishment of a state-financed mortgage fund tasked with making housing credit more accessible to Armenians.
Citing the country’s worsening macroeconomic performance, Prime Minister Tigran Sarkisian promised more government assistance to the construction industry during a weekly session of his cabinet on Thursday. “Since investments in construction were mainly coming from Russia, the fall in investment volumes and private remittances is hitting the construction sector in the first instance,” he said. “That is why we have to take additional measures to spur construction.”
Sarkisian said earlier that the government will spend approximately 14 percent of a $500 million anti-crisis loan from Russia on housing construction in Armenia’s northern regions devastated by the 1988 earthquake. The government also received in April a $25 million loan from the World Bank for rebuilding rural roads and other infrastructure.
The Armenian authorities say that these and other external loans should ease the recession in the second half of the year. They hope that falling interest rates will also reflect positively on the economy.
The Central Bank of Armenia (CBA) cut its benchmark re-financing rate for a third time in two months on June 9. It was set at 6 percent, down from the early March level of 7.75 percent.
“The first nine months [of 2009] will be the most difficult ones,” Sarkisian told ministers on Thursday. “Our economic indicators will start to improve at the end of the year.”
The World Bank seems to share that view. Aristomene Varoudakis, head of the bank’s Yerevan office, forecast a full-year GDP contraction of 9-9.5 percent last week. “We expect that next year will see a growth at around 1.5-2 percent,” he said.
The International Monetary Fund, for its part, expects the Armenian economy to post zero growth in 2010.