ARMENIA’S TRADE DEFICIT REMAINS WORRYINGLY DEEP IN 2009

World Markets Research Center
Global Insight
January 27, 2010

BYLINE: Venla Sipila

According to figures from the Armenian State Statistical Service,
exports from the country in 2009 as a whole amounted to US$697.8
million, collapsing by 34% from the year before, ARKA News reports. At
the same time, imports decreased by 25.3%, totalling US$3.3 billion
for the year as a whole. Thus, while imports also fell drastically,
their contraction was clearly less pronounced that the decrease in
exports, and the Armenian trade deficit for the year came in at a
very deep total of US$2.61 billion. In December alone, exports grew by
1.8% month-on-month (m/m), while imports fell by 4.4% m/m. The annual
trade gap for 2009 corresponds to some 30% of the reported annual GDP,
marking some further deterioration from the 2008 deficit to GDP ratio
of 28%, and still slightly worse performance than expected in our
latest forecast.

Significance:The external trade data for 2009 as a whole tell a
similar story as do the GDP figures; annual performance was dismal,
but somewhat less so towards the end of the year. One key implication
from the weak export performance is that the dram devaluation in
March did not have any marked boosting impact on exports–but without
it, the trade deficit would likely have ballooned even further,
as imports would have contracted more modestly. The revival of the
world economy should have some positive impact on exports, but the
Armenian export sector still needs to go through major restructuring
in order to increase productivity and competitiveness, as exchange rate
support clearly is not enough in this respect. Diamond trade typically
accounted for around 40% of Armenia’s exports in the early years of
Armenian recent economic boom over the recent decade, and the country
is seeking to revive this sector with a loan from Russia. However, it
should find outer branches with a potential competitive advantage. The
deepness of the trade deficit will be further reflected in a wide
current-account shortfall for 2009 as well. While the current-account
gap in nominal terms is narrowing (seeArmenia: 18 January 2010:),
full-year data are likely to show a deteriorating deficit-to-GDP ratio.