“Positive shock”: Factors behind 12% economic activity growth
YEREVAN, JULY 29, ARMENPRESS. Despite the expected negative impact on the Armenian economy from the Russian economy – Armenia’s main trade partner – the economic activity index grew around 12% in the first half of 2022, and the flow of capital and tourists were a positive “shock” for the economy.
The government continues to predict 7% growth for the year, with the possibility of surpassing it in case of preserving the current pace.
Services ensured most of the growth – 26,9%.
“We have rather positive dynamics in other branches also, with the exception of agriculture,” says Eduard Hakobyan, Director of Macroeconomic Policy Department at the Ministry of Finance.
“The expectations of economic developments were pessimistic but factually we have a situation when positive risks materialized and we have high economic growth. How did this happen? All professional forecast institutions predicted around 2% economic growth for Armenia in the beginning of the year. We have the Russian-Ukrainian conflict with all its negative consequences, with deep decline expected in Russia, which, certainly, should’ve impacted the Armenian economy. Russia is an important trade-economic partner for Armenia with several connections: export and import, tourism flows, remittances and foreign investments. We had negative expectations from this perspective. But starting from the fourth month we saw rather impressive growth in all directions. Both in exports to Russia, remittances from Russia, foreign investments and tourism, with the latter being the key. These developments led to capital and tourism flows, which is so to say a “positive shock” for the economy. We have rather impressive developments in 4-5 directions, especially in the service sector, tourism-related sectors, accommodation, hotels, restaurants, also real estate, the financial system and transport. I am speaking about people and capital. People moved to Armenia, some companies relocated here, people brought certain capital flows with them. In addition, a foreign currency flow to Armenia is also happening which has developed additional demand for services sector. Therefore, we are having such high growths.”
Asked about the impact on the Armenian economy if in fact the 6% decline predictions for the Russian economy come true, the expert said: “We haven’t had a shock like that in the world. All assessments, including ours, show that Russia is the key factor which is impacting our economy. 1% change of economic growth, drop or increase, is impacting the Armenian economy. This was always the case, both during the global crisis and in 2014-2015 when the first sanctions were imposed on Russia. But the situation is different today because its transfer routes are working oppositely. The changes of the growth that would bring negative consequences are mostly positive.”
Speaking about inflation, Hakobyan said that compared to other regional countries the inflation in Armenia is actually the lowest.
He said that back in February-March international organizations were predicting 2 or 3% growth for Armenia. “But current developments show that all international organizations are starting to revise their expectations higher. For example, the IMF recently made a statement on 5% growth when it had previously assessed 1,5% growth for Armenia.