Country Report Armenia February 2009

Outlook for 2009-10

The political scene will remain volatile, following the crackdown on a post-election opposition demonstration by the police in March 2008, in which ten people died. With economic growth set to slow sharply, the emergence of new rivalries among the political establishment—for example, the return to politics of Robert Kocharian, a former president—would weaken the pace of reform. Moreover, there is a growing risk of social unrest, with unemployment set to rise and remittance inflows set to fall. Real GDP growth is expected to slow to just 1-3% in 2009-10, based on the assumption of weakening domestic demand and economic slowdowns in the countries that play host to Armenian migrant workers, or are Armenia's main export markets and sources of investment. Although the trade gap will narrow, smaller surpluses on the transfers and income accounts will keep the current-account deficit at just over 13% of GDP.

The political scene

The Parliamentary Assembly of the Council of Europe (PACE) has decided not to suspend the voting rights of its Armenian members, and has given the authorities more time to comply with its resolutions calling for the release from prison of opposition figures. The opposition alliance leader, Levon Ter-Petrosian, has suspended a campaign of street protests for the time being. Senior officials from Armenia and Turkey have met to discuss the normalisation of relations, and more talks with Azerbaijan over Nagorny Karabakh have been held.

Economic policy

A shortfall in budget expenditure and large increase in tax revenue enabled the government to post a near-balanced state budget in 2008. Reforms of the tax administration boosted revenue, but corporate tax revenue remains low. The prime minister, Tigran Sarkisian, has promised to end the privileged treatment of large companies owned by businessmen connected to the government.

The domestic economy

Real GDP grew by 6.8% in 2008, after six years of double-digit expansion. The global downturn has ended the construction boom, and falling prices of base metals affected the metallurgy and mining sectors. Weakening commodity prices helped to reduce year-end inflation to 5.3% in 2008; the average annual rate was 9%. The Central Bank of Armenia has intervened to support the dram.

Foreign trade and payments

The trade deficit grew from US$2.1bn in 2007 to US$3.3bn in 2008, owing to a surge in imports of industrial and transport equipment, and falling export revenue, attributable to weak global commodity prices. The current-account deficit widened from US$341m in January-September 2007 to US$925m a year later.

This report covers the following industry codes:
SIC Code: 39;49;1;60
NAICS Code: 31;22;11;52