Notes From Hairenik

Yesterday a story was published on citing a continuing double-digit surge in Armenia’s economy.

Macroeconomic figures released by the National Statistical Service (NSS) show Gross Domestic Product increasing by 13.8 percent to 3.14 trillion drams ($10.2 billion). The resulting inflationary pressures on the economy pushed up consumer prices by an average of 6.6 percent, well above a 4 percent target set by the government and the Central Bank.

As was the case in the previous few years, robust growth was primarily driven by burgeoning construction and services. The two sectors expanded by approximately 20 percent and together accounted for over 38 percent of GDP.

Industry, which generated another 23 percent of GDP, remained the most sluggish sector of the Armenian economy. Its aggregate output was up by only 2.6 percent not least because of a further sharp decline in the country’s diamond-cutting industry, the official statistics show.

Indeed, inflation is really getting out of control. The current exchange rate is about 305 dram to the dollar and has been hovering there for just less than six months if memory serves. So for the sake of comparison, a 200 gram container of strained yogurt, which sold for 200 dram only a few months ago with the same exchange rate, now sells for 300 dram. That is simply outrageous since Armenia is the land of yogurt and it is a basic food staple here. A loaf of dark rye bread which sold for 130 dram during the summer now goes for 200 dram. The prices for imports, such as cleaning products for instance, are falling in some cases, but only by 30 cents or so. Those prices are still too high considering that imports in 2007 supposedly increased by 50 percent. As another example, one liter of gasoline, most of which is imported from Eastern Europe, sells for about 370 dram, whereas in autumn it was about 350 dram. For American readers that new price equals about $4.60 per gallon. That’s a 25 cent increase which went into effect during a two-week time span as I remember. Yet a friend of mine whose name I won’t reveal has been making the same salary paid in dram for three consecutive years despite the abnormal inflation. I daresay that holds true for many other Armenians, despite the NSS’s claim that there were “more than 20 percent gains in household incomes and the average wage which now stands at about 77,000 drams ($250) per month.”

Anyway, we’ll see what happens but I think this bubble is bound to burst eventually if this keeps up. Perhaps a change in power in another month or so will make a difference and somehow normalize the situation if that is even possible, as the presidential elections are due to be held on February 19. This kind of drastic economic growth occurred in the US in the 1920s before an overnight downturn, the aftermath of which put millions of people out of work as well as their homes. I know it is silly to compare the two economies, and such a drastic change will most likely not meet Armenia’s fate, but a turn for the worse could well indeed happen. The thing is, no one can really predict it, including economists not connected with the government judging from interviews I have read with them. But the hope is that continued inflation will be suppressed and prices will level out commensurate with average monthly wages earned.


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