Expert warns of risk of overheated economy, calls for long-term policy

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 09:37, 2 September 2022

YEREVAN, SEPTEMBER 2, ARMENPRESS. A significant economic activity growth has been recorded in Armenia over the course of the past 7 months. However, the economy is developing at a rate which is higher than its potential and this leads to the risk of an overheated economy, Amberd Analytical Center’s expert Mary Hovsepyan told ARMENPRESS.

“Upon studying the statistics of the 7 months it becomes clear that in the past months we are facing risks of overheated economy all the time. In the 7 months period the economic activity index was 13,1 percent, while in July alone the year-on-year growth was 19,4 percent,” Hovsepyan said.

Services grew 27,5%, construction grew 13,6%, trade grew 12,5% and industrial output grew 7%.

Trade and services contributed a 11,45 percentage point to the GDP growth, Hovsepyan said.

“The main locomotive of the growth was trade and services, then construction and followed by industry,” she added, noting that only agriculture had negative contribution (-0,15 percentage point).

Hovsepyan says the significant activeness of the trade and services is linked with external factors. A significant inflow of transfers was recorded despite earlier forecasts suggesting an expected decline.

The impact of increased tourism and visits of international visitors is also noticeable on the economy.

As a result, service market grew, the national currency appreciated, activeness is seen in the real estate market, and prices have increased.

According to Hovsepyan, the risks are that despite these circumstances having a positive effect in short-term and contributing to economic activity and growth, nevertheless due to external factors these circumstances could potentially create risks for the economy and after the possible resolution of external factors these flows could simply significantly drop.

“In short-term, international flows have very positive impact and we see this immediately in economic activity indicators. But, from the moment when for example the situation gets stabilized, the conflict hypothetically gets resolved, it is possible that both the transfers and international visitor flow stop, which would naturally have negative impact. The “phenomenon” of this growth is a short-term phenomenon, which means that in long-term a policy must be developed in order to try and create maximally attractive conditions for foreign capital in Armenia so that the capital which has come doesn’t exit the country and become an investment in the real segment of the economy.”

Foreign trade grew 47,7%. In July the export growth pace surpassed the import growth pace but the 7-month period shows that import growth still exceeds exports. According to the expert there is an issue of diversifying exports in terms of both products and directions.

If the current pace is maintained, the 7% economic growth forecast could be surpassed and a double digit growth will be recorded.”But forecasts can’t be accurate because the situation in the international arena is changing every day and a lot depends on these developments.”

Speaking about the euro exchange rate against the dram, which was recently lower than the dollar, Hovsepyan said that this kind of a drop of the euro was recorded last time in the 2008-2009 period. External factors are behind this, but this could directly impact the economy, particularly the exporters who trade in euro.

Exporters trading in foreign currency are diversifying to several foreign currencies or national currency, she said.

 

Anna Grigoryan