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Global Insight
March 6, 2013
Armenia surpasses 2012 growth target, near-term outlook fairly positive
by Lilit Gevorgyan
Armenian economic activity posted relatively strong growth of 7.2% in
2012, exceeding the government's 6.3% target for the year.
Another year for exceeded growth targets
The Armenian National Statistical Service reported that the real GDP
(at market prices) increased by 7.2% in 2012 as a whole, an
improvement from gains of 4.7% in 2011 and 2.2% in 2010. With the GDP
deflator falling by 1.6% in 2012, nominal GDP expanded by 5.6% in
2012, down from rises of 8.9% in 2011 and 10% in 2010.
Moreover, this result exceeds most expectations, coming above our
latest forecast (4.5%) and the consensus forecast (4.4%), as well as
the official target rate set by the government (6.3%).
Armenia's robust economic performance in 2012 was a result of
continuing strong growth in agricultural and industrial sectors,
further supported by increased domestic trade volumes. Favourable
weather conditions, as well as the government's decision to allow use
of water at minimal and in some cases, no cost, appear to have
contributed to good harvests. Conversely, expanding mining of metal
ores production driven by strong external demand was another major
contributor to Armenia's better than expected economic performance in
2012. In terms of export profile, good harvest has lessened the need
for food imports; while the increase in external demand for Armenia's
metal ores have aided to narrow the trade balance.
Agriculture and industry drive growth, construction falls again
A breakdown by sector shows that the important agricultural sector was
a major contributor to economic growth in 2012, with output from the
sector rising by 8.6% year-on-year (y/y) in the January-November
period when compared to a year earlier. As a result of the
exceptionally good harvest agricultural produce (excluding husbandry)
grew by impressive 12.2% in the January-November period.
The volume of industrial production also increased by 9.8% in 2012 as
a whole compared to 14.1% rise in the previous year. Specifically,
mining of metal ores output grew by 14.7% in 2012, while the other key
sectors, namely base metals and processed food production expanded by
9.2% and 4.6%, respectively. Meanwhile, construction activity fell for
a fourth consecutive year when it fell by 1.9% in 2012. It was
preceded by falls of 10% in 2011, 0.1% in 2010, and 27.3% in 2009. The
financial crisis of 2008/9 exposed and then burst a housing market
bubble, leaving an oversupply of high-value properties that continues
to weigh down on construction activity.
Persisting deep trade deficit
Armenia's customs-basis merchandise trade shortfall remained
relatively stable in 2012, with the trade deficit standing at USD2.8
billion. Exports grew by 7% in 2012, totalling USD1.4 billion, helped
by a surge in agricultural exports to Russia and other CIS countries,
as well as stronger base metal exports. Meanwhile imports grew by 2.9%
y/y, reaching USD4.3 billion. Encouragingly, Armenian export volumes
have continued to grow since 2010, but lingering trade imbalances
remain a concern. On a positive note, access to concessional lending
is likely to mitigate external financing requirements in the medium
term.
Outlook and implications
Economic activity should continue to grow at a fairly robust rate in
the coming quarters, supported by a considerably strengthened
agricultural sector assuming good weather conditions hold, while the
mining sector has benefited from high international metal prices.
Nevertheless, annual growth is moderating again, as we expected. The
following months and quarters are likely to see growth somewhat
moderate, even if annual GDP expansion of around 4% in 2013 should be
achievable, which sits lower the official growth target of 6.3% set
out the approved 2013 budget plan. Our assumption of softer growth
performance in 2013 is a result of weaker export gains due a less
conducive environment for the country's base metal exports while
growth in agricultural products is unlikely to match last year's
results.
However, Armenia's economic performance over the next 12 months will
depend on external factors, namely the level of inflow of workers'
remittances, as well as financial risks due to continuing European
sovereign debt crisis. That said, considering that relatively stable
economic conditions in Russia, were most of the guest workers seek
employment, no major disruptions of remittances are projected for
2013. The eased global commodity prices will provide less of a boost
for output value growth in the industrial sector, further suppressing
metal export values. The weakened dram will continue suppressing
imports, while it also gives some support for export competitiveness.
The instability of the external environment poses major risks to the
outlook.
Armenia's access to international lenders such as the International
Monetary Fund (IMF) is unlikely to change in 2013, mitigating the
risks to overall economic performance. However, the country needs
deeper structural reforms, including dismantling existing monopolistic
structures, to unlock its economic potential in the coming years. With
the strengthening of opposition movement in recent months the public
spotlight will be on the country's economic performance, particularly
on issues of competitiveness. It is hoped that the public involvement
and scrutiny will improve business environment and increase economic
opportunities in Armenia and ultimately contribute to its economy's
better performance.
From: A. Papazian
March 6, 2013
Armenia surpasses 2012 growth target, near-term outlook fairly positive
by Lilit Gevorgyan
Armenian economic activity posted relatively strong growth of 7.2% in
2012, exceeding the government's 6.3% target for the year.
Another year for exceeded growth targets
The Armenian National Statistical Service reported that the real GDP
(at market prices) increased by 7.2% in 2012 as a whole, an
improvement from gains of 4.7% in 2011 and 2.2% in 2010. With the GDP
deflator falling by 1.6% in 2012, nominal GDP expanded by 5.6% in
2012, down from rises of 8.9% in 2011 and 10% in 2010.
Moreover, this result exceeds most expectations, coming above our
latest forecast (4.5%) and the consensus forecast (4.4%), as well as
the official target rate set by the government (6.3%).
Armenia's robust economic performance in 2012 was a result of
continuing strong growth in agricultural and industrial sectors,
further supported by increased domestic trade volumes. Favourable
weather conditions, as well as the government's decision to allow use
of water at minimal and in some cases, no cost, appear to have
contributed to good harvests. Conversely, expanding mining of metal
ores production driven by strong external demand was another major
contributor to Armenia's better than expected economic performance in
2012. In terms of export profile, good harvest has lessened the need
for food imports; while the increase in external demand for Armenia's
metal ores have aided to narrow the trade balance.
Agriculture and industry drive growth, construction falls again
A breakdown by sector shows that the important agricultural sector was
a major contributor to economic growth in 2012, with output from the
sector rising by 8.6% year-on-year (y/y) in the January-November
period when compared to a year earlier. As a result of the
exceptionally good harvest agricultural produce (excluding husbandry)
grew by impressive 12.2% in the January-November period.
The volume of industrial production also increased by 9.8% in 2012 as
a whole compared to 14.1% rise in the previous year. Specifically,
mining of metal ores output grew by 14.7% in 2012, while the other key
sectors, namely base metals and processed food production expanded by
9.2% and 4.6%, respectively. Meanwhile, construction activity fell for
a fourth consecutive year when it fell by 1.9% in 2012. It was
preceded by falls of 10% in 2011, 0.1% in 2010, and 27.3% in 2009. The
financial crisis of 2008/9 exposed and then burst a housing market
bubble, leaving an oversupply of high-value properties that continues
to weigh down on construction activity.
Persisting deep trade deficit
Armenia's customs-basis merchandise trade shortfall remained
relatively stable in 2012, with the trade deficit standing at USD2.8
billion. Exports grew by 7% in 2012, totalling USD1.4 billion, helped
by a surge in agricultural exports to Russia and other CIS countries,
as well as stronger base metal exports. Meanwhile imports grew by 2.9%
y/y, reaching USD4.3 billion. Encouragingly, Armenian export volumes
have continued to grow since 2010, but lingering trade imbalances
remain a concern. On a positive note, access to concessional lending
is likely to mitigate external financing requirements in the medium
term.
Outlook and implications
Economic activity should continue to grow at a fairly robust rate in
the coming quarters, supported by a considerably strengthened
agricultural sector assuming good weather conditions hold, while the
mining sector has benefited from high international metal prices.
Nevertheless, annual growth is moderating again, as we expected. The
following months and quarters are likely to see growth somewhat
moderate, even if annual GDP expansion of around 4% in 2013 should be
achievable, which sits lower the official growth target of 6.3% set
out the approved 2013 budget plan. Our assumption of softer growth
performance in 2013 is a result of weaker export gains due a less
conducive environment for the country's base metal exports while
growth in agricultural products is unlikely to match last year's
results.
However, Armenia's economic performance over the next 12 months will
depend on external factors, namely the level of inflow of workers'
remittances, as well as financial risks due to continuing European
sovereign debt crisis. That said, considering that relatively stable
economic conditions in Russia, were most of the guest workers seek
employment, no major disruptions of remittances are projected for
2013. The eased global commodity prices will provide less of a boost
for output value growth in the industrial sector, further suppressing
metal export values. The weakened dram will continue suppressing
imports, while it also gives some support for export competitiveness.
The instability of the external environment poses major risks to the
outlook.
Armenia's access to international lenders such as the International
Monetary Fund (IMF) is unlikely to change in 2013, mitigating the
risks to overall economic performance. However, the country needs
deeper structural reforms, including dismantling existing monopolistic
structures, to unlock its economic potential in the coming years. With
the strengthening of opposition movement in recent months the public
spotlight will be on the country's economic performance, particularly
on issues of competitiveness. It is hoped that the public involvement
and scrutiny will improve business environment and increase economic
opportunities in Armenia and ultimately contribute to its economy's
better performance.
From: A. Papazian