ARMENIAN BUSINESS CONFIDENCE SINKS IN Q4
Venla Sipila

World Markets Research Centre
Dec 18 2008

The newest confidence survey by the Central Bank of Armenia (CBA)
signals weakening sentiment among the country’s producers. ARKA
News reports that the economic performance indicator, which measures
overall confidence on a 100-point scale, in the fourth quarter of the
year measured 40.7, falling by a fourth in annual comparison and by
around 38% from the third quarter of 2008. Meanwhile, the business
sentiment indicator slid by some 12% year-on-year (y/y) and 16%
quarter-on-quarter (q/q), standing at 41.5 in the fourth quarter. Only
the composite consumer confidence index managed to avoid an annual
fall, rising by a marginal rate of 0.3% y/y, but also this indicator
fell from the third quarter, its level of 48.7 marking a decrease of
5.6% q/q. The CBA has conducted quarterly confidence surveys since
2005. Over 800 industrial, construction and service companies and
nearly 1,900 households were surveyed.

Significance:While consumer confidence remained virtually stable
in annual comparison, all components of the survey signal weakening
sentiment. Moreover, the values of all three components stand below
the critical 50-point mark, signalling negative sentiment. The newest
official data put Armenian GDP growth in January-October 2008 at 9.2%
y/y (see Armenia: 24 November 2008: ). After growing at double-digit
rates for the past several years, the Armenian economy finally looks
set to cool, and the official growth projection of over 9% for 2009
seems overly optimistic to us, while we do not see recession likely
in Armenia as domestic demand, still rising from a relatively low
base, should still remain strong enough to support growth at positive
rates. The global financial crisis will not have any notable direct
impact on Armenia, due to the still-undeveloped and relatively isolated
nature of its financial sector. However, indirect negative effects
from the international crisis will likely be felt as moderating
investment and current transfer inflows, while the country’s already
meagre export prospects have also weakened further.