By Albert Khachatryan

The Armenian housing construction sector, which had ensured two-digit GDP growth rates until early 2009, has had quite the opposite effect on the macroeconomic index this year. This January-July, the GDP registered a decrease of up to 18.5% — the same two-digit figure we were proud of before. True, some experts point out a seemingly hope-inspiring 6.3% increase in GDP this July as compared with this June. This increase is often regarded as crucial for in Armenia’s economic development and even as a starting point of the country’s recovery from the economic crisis. However, it is only at first sight.

In a number of sectors, especially the agricultural sector, the monthly production output demonstrates obvious seasonality. Specifically, the agricultural sector registered a 58.7% increase in the output this June, which is quite understandable: July marks the beginning of harvest campaign. To make sure, one can only look at the same index for the previous years. Specifically, last July gross agricultural output registered an increase of up to 63.7% as compared with last June. Thus, last year’s increase is 5% as high as this year’s, and there is no special occasion for rejoicing over the July “achievements.” It would be absurd to account for all the “insignificant events” in our agricultural sector by the global crisis. However, it is as clear as noonday that such a slowdown in the rates of increase in the agricultural sector is undesirable now.

Back to the GDP – the poor index is the result of influence by almost all the economic sectors of Armenia, first of all the construction sector.

The situation in the sector can be considered a most grave one: a 2.2-fold decrease. On the other hand we should not exaggerate the influence on the construction sector on our economy. Except for a decline in job registered in the sector, as well as in the demand for home-made building materials, the fact itself can even be welcomed. Spending hundreds of billions of drams on housing construction is not only unpractical, but also absurd for a country in dire need for investments. For example, last year 600 billion AMD construction work was carried out on the population’s funds. It is no secret that the large-scale construction in Armenia over recent years has not been a necessity, as, for the most part, the construction projects have been designed to spur the local nouveaux riches’ ambitions. By the way, this phenomenon, as well as the inflation of housing prices, is far from being a local one, which deserves a more detailed study.

Although, with respect to construction, many of the CIS member-countries have “traveled the same road”, Armenia has “reached the bottom” in terms of GDP. Unlike the other former “fraternal” republics, it is the construction sector that has, to a considerable extent, contributed to our economic “achievements.” Last year, the construction sector’s share in the GDP was 27.1% against the 13% share of the industrial sector (with energy generation). So it is clear why the “boomerang effect” produced by the construction sector proved to be more harmful.

Here is another surprising fact. While all the economic sectors are registering a significant decline, the average nominal monthly wages showed a 12.1% rise (!) this January-July. It turns out that, in the first half of this year, all the economic sectors, except for the mining industry, registered a wage increase. The highest wage increase was registered in the trade sector and household appliance repair services (137.3%). True, the wages of salespeople and “fixers” are still low, 81,800 AMD (about $225) as compared with the average monthly wages in Armenia (about 97,000 AMD). The financial sector remains leader, with monthly salaries there exceeding the average level more than 2.6 times. With the banking system’s insignificant contribution to the development of Armenian economy, one can only be surprised at the “wage progress” in the system.

Commodity turnover is another paradox. Retail trade registered a symbolic increase of 0.1%. It is surprising that the increase was registered against the crisis in Armenia’s industrial sector, a sharp decrease in exports and in private money transfers from abroad.

This January-July, the industrial production index reached 88%, with the processing industry index being 87%. The same period saw a 6.4% decrease in food output (inclusive of beverages). The output of meat products (inclusive of sausages) registered a 41.5% increase, and that of tobacco products a 20.9% increase. The output of cheese, confectionery, noodles, etc.. increased as well. On the whole, the Armenian food industry does not provide a clear picture in terms of specific products. On the other hand, the output of milk, canned food, soft and hard drinks (vodka and brandy) registered a decrease.

A downward tend in imports has for the first time been observed over recent years. This January-July, imports decreased by 29.5%, with a 24% decrease in the imports of finished food products and 7.8% decrease in that of vegetables. So the retail trade stability was supposedly ensured by an increase in the output of a number of product items in Armenia, as well as due to the retail and wholesale of reserved imported products. But how can it be harmonized with the considerable decrease in private money transfers from abroad (mostly from Russia)?

The aforementioned economic collisions affected the Armenian state budget. The budget tax revenues registered a decrease of 18.1%, with a decrease of up to 25.1% in VAT revenues. As a result, this January-July the state budget deficit “set a new record”, reaching 67.5 billion AMD. External financing was widely used to cover the budget deficit. As a result, the external financing of the Armenian state budget jumped from 9 billion AMD last January-July up to 261 billion AMD this January-July.