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Armenia Shows Strong Q3 GDP Results But Outlook Is Clearly Darker

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  • Armenia Shows Strong Q3 GDP Results But Outlook Is Clearly Darker

    ARMENIA SHOWS STRONG Q3 GDP RESULTS BUT OUTLOOK IS CLEARLY DARKER

    IHS Global Insight
    December 2, 2014

    by: Venla Sipila

    According to the latest national accounts results published by the
    Armenian National Statistical Service, the economy in the third
    quarter of 2014 expanded by 5.3% year on year (y/y). This rate
    marks substantial acceleration in growth; second-quarter growth had
    been reported at 2.3% y/y, following 3.1% y/y in the first. Further
    Statistical Service data, quoted by ARKA News, showed that agricultural
    output increased by 2.8%, accounting for nearly 30% of the total
    GDP. Meanwhile, the industrial and construction sectors continued to
    struggle; industrial output edged up by just 0.4%, while construction
    activity contracted by 0.7%. GDP-shares of these two sectors were 15.1%
    and 7.5%, respectively.

    Services, including domestic trade, accounted for close to 40% of
    the total GDP, rising by 2.5%. Suggesting weakening performance, the
    latest indicator of economic activity from the National Statistical
    Service increased by 3.7% y/y in October, following gains of 5.1%
    in September, 4.2% in August and 7.2% in July. Annual growth for the
    January-October period was put at 4.2%. The latest economic results
    come after some downward revisions to official economic projections.

    Indeed, according to ARKA News, the Central Bank of Armenia (CBA)
    recently cut its 2014 growth forecast to 3.1-3.6%, down from the
    previous projection range of 3.6-4.2%. Meanwhile, the Finance Ministry
    now projects 2014 economic expansion at 3.3%. This rate compares to
    5.2%, originally targeted in this year's budget.

    Significance:The weakening seen in the monthly indicator is more
    informative in reflecting the current key trends in the Armenian
    economy. The industrial and construction sectors continue performing
    weakly. Meanwhile, also the outlook for the service sectors - which
    have this year generally performed relatively well - is weak, given
    that household consumption is likely to be increasingly suppressed in
    the coming months and quarters. This is because the economy is very
    dependent on external capital inflows such as workers' remittances,
    and these increasingly threatened given the substantially weakened
    outlook for the Russian economy, in particular. The Russian downturn
    has a negative impact on the Armenian economy also due to its important
    role as a trade partner. Consequently, we see major risks to the
    government's official 2015 growth projection of 4% as well.

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