EDB experts confirm on active restoration of consumer demand in Armenia

ArmInfo. The growth of consumer activity in September contributed to an increase in trade turnover (an increase of 14.2% y/y) and the volume of services (16.2% y/y). This is stated in the chapter of the monthly (October) macro review of the Eurasian Development Bank (EDB) on Armenia. According to analysts of the Bank, this small growth in construction (1.3% y/y) was largely due to the low base of the previous year (a drop of 17.3% in September 2016). Support for consumer demand in September remained on the lending side (the volume of loans in national currency to households increased by 14.9% at the end of September 2017 compared to the same period in 2016) and nominal wage growth (a 2% y/y).

Against this background, the retail trade turnover increased by 6.2% y/y in September (a drop of 3.3% y/y a year earlier). Another factor showing the active restoration of domestic demand, according to analysts, is the high growth in imports, which in September amounted to 29.1% y/y, and in general for Jan-Sep 2017, the value of imports increased by 23 , 2% compared to the same period of 2016. Against this backdrop, the negative balance of the foreign trade balance in September reached the highest level since 2014 at $ 217.5 million ($ 126.5 million a month earlier) and in Jan-Sep amounted to - $ 1,274.1 million. At the same time, it should be noted that the export growth remained at a rather high level, which in Jan-Sep 2017 amounted to 19.1% y/y.

Annual inflation in September 2017 increased to 1% from 0.9% a month earlier. The main limiting factors in September were the decrease in prices for non-food products and tariffs for services. In the remaining months of this year, it is expected that the trend will continue to reduce the deviation of inflation from the target of the Central Bank.

The indicator of economic activity in September 2017 remained at a rather low level and amounted to 2.5% y/y (2.4% y/y a month earlier). In Jan-Sep, the increase was 5.1% y/y. Despite the continuing high activity of industrial production (an increase of 8.3% y/y in September), a significant reduction in the volume of gross agricultural output remains a factor restraining the growth of the indicator of economic activity (a drop in September by 11.6% y/y). Given the low base of last year (the fall in September 2016 by 19.5% y/y), the negative dynamics may indicate a significant decrease in the harvest due to prevailing weather conditions.

As noted in the document, Armenia slightly deteriorated its position in the updated Doing Business ranking compared to the previous year. If the rating of the last year is recalculated taking into account the new methodology, Armenia moved from 45th to 47th position. At the same time, the indicator of ease of doing business in Armenia continued to improve (+0.59 points).

According to the findings of the review prepared by the Chief Economist of the EDB, as the end of 2017 approaches, the medium-term prospects for the recovery of the EDB economies are somewhat clear. If at the beginning of 2017 there were still concerns about the continuation of the recession in a number of countries in the region, by the end of 2017 it is clear that all EDB countries will demonstrate positive economic growth rates. "In conditions of a certain decrease in the economic vulnerability of EDB countries, external economic shocks take on greater weight on the horizon of the next few years," said EDB Chief Economist Yaroslav Lissovolik. In particular, the instability of the banking sector in the countries of the region, including significant levels of the share of overdue loans in Belarus (12.8% in September 2017), Kazakhstan (12.8%) and Tajikistan (24.1% - excluding interbank debt). A key risk in the direction of economic policy direction may be the hobby of stimulating economic growth to the detriment of macroeconomic stability against the background of a relatively easy and rapid reduction in inflation to record low levels this year.

The authors of the review believe that, despite these risks, while observing the proper balance between measures to stimulate growth and maintain a critical mass of achievements in the field of macroeconomic stability, this year may be a turning point for the EDB countries in achieving the trajectory of sustainable development.

The Eurasian Development Bank (EDB) is an international financial organization established by Russia and Kazakhstan in January 2006 to promote the development of the market economy of the participating countries, their sustainable economic growth and the expansion of mutual trade and economic relations.  The authorized capital of EDB is 7 billion USD. The Member States of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation and the Republic of Tajikistan.