MARCH BRINGS FURTHER SIGNS OF ARMENIAN GDP, EXPORT RECOVERY
Venla Sipila

World Markets Research Centre
Global Insight
April 21 2010

According to National Statistical Service figures quoted by ARKA News,
Armenia’s GDP expanded by 5.5% year-on-year (y/y) in the first quarter
of 2010. This result suggests acceleration in annual growth in March,
given that the growth rate for January-February had earlier been
reported at 3.1%. March alone saw total output surge by over 43% from
February. Industrial output in the first quarter increased by 10.4%
y/y, while it gained 7.7% month-on-month (m/m) in March. Meanwhile,
the still very important agricultural sector expanded by 3.2% y/y in
the first quarter, and surged by 14.7% in March compared to February.

Conversely, construction sector output continued to fall in the
first quarter, although the decrease of 0.6% y/y in activity remained
relatively modest compared to recent results. ARKA News also reports
on foreign trade results, which put first-quarter exports to US$198.5
million, marking an annual surge of some 61%. Meanwhile, imports gained
23.1% y/y, totalling US$814.2 million, and bringing the January-March
trade deficit to US$615.7 million. In March alone, exports rose by
11.1% m/m, while imports gained 16.5% m/m.

Significance:While acceleration in growth is naturally welcome, its
significance should not be exaggerated. First, this improvement in
annual growth still partly draws from base effects, and the Armenian
recovery is taking off from an extremely weak position. Second,
the economy remains very weak structurally, competitiveness is low,
and dependence on external remittances is substantial. Annual growth
is likely to moderate again in the coming quarters, while its scope
to an important extent depends on Russia’s economic fortunes, given
the crucial role of remittance inflows from there. In addition,
given the increase in the price of natural gas imports from Russia
from the beginning of April, pressures on the external position will
also remain, and the scope for near-term improvement is thus limited
in this respect. The government has outlined some measures aimed at
diversifying the economy, but a lot still needs to be done before
the economy becomes considerably more competitive and attractive
for private investment. In the meantime, some further exchange
rate weakening may be needed in the way of adjustment to secure the
sustainability of external finances.