FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
NASDAQ OMX ARMENIA
ECONOMIC AND POLITICAL DEVELOPMENTS
Political and Economic Performance
The political scene will remain tense. The new
president, Serzh Sarkisian, formed a four-party
coalition government and appointed Tigran
Sarkisian (no relation) as prime minister. The
appointment of the non-party-affiliated and
respected Mr Sarkisian (who was formerly
chairman of the Central Bank of Armenia)
indicates the president’s desire to appease his
critics and reduce the polarization of the
political scene.
Despite strong Western criticism of the
conduct of the presidential election, Armenia’s
aid programs with the US and EU appear only
to have been delayed, rather than suspended,
as had been threatened. The US had warned
that the disbursement of US$236m from the
US Millennium Challenge Account could be
terminated altogether in the light of the
imposition of the state of emergency in March.
However, given the political capital already
invested in these programs (in the case of the
EU, the European Neighborhood Policy), it
seems likely that Armenia will continue to
benefit both financially and from technical
assistance through participation in these
programs.
Economic policy under Serzh Sarkisian will
differ little from that of his predecessor, given
that Mr Sarkisian has long been at the heart of
the political scene. With a respected former
Central Bank governor leading the
government, prospects for greater progress in
tackling corruption within the tax and customs
administrations, strengthening the rule of law,
and ensuring fair business competition have
improved. However, given the close links
between political and business circles in
Armenia, vested interests will still present an
obstacle to more transparent policies.
Economic Performance
The global economy is set to slow significantly
and the downside risks to the world economic
outlook remain elevated. This reflects not just
continued problems in the US and European
financial sectors, but also higher global
inflationary pressures, which are eroding
corporate competitiveness, crimping
consumers’ spending power and casting a
shadow over growth prospects in many
countries. As well as fluctuations in commodity
prices, Armenia’s growth prospects would be
vulnerable to any downturn in its main export
partners, such as Germany and Russia.
A booming construction sector continues to
drive economic growth which was 10.3% year
on year in the first half of 2008 owing to
residential and office development and
ongoing improvements to energy and
transport infrastructure. The financial services
sector is also growing strongly, expanding by
22.8% in January-June 2008, as robust
demand for consumer credit supports banking
sector activity. With favorable fruit and
vegetable harvests contributing to positive
growth in the agriculture sector, real GDP
growth forecast is of 10% in 2008. The strong
base period and real currency appreciation are
likely to push growth down to around 7% in
2009.
Year-on-year inflation reached its highest level
for a decade in July 2008, of 10.9%. High
prices for imports such as wheat and mineral
products, together with the rapid expansion of
monetary aggregates, will continue to exert
pressure on prices. The effect of the
appreciating dram on prices has been smaller
than expected, owing to the monopoly status
of importers of several staple goods. These
factors will keep annual average inflation high
in 2008, at around 9%. Falling global food
prices should encourage disinflation, to an
annual average rate of inflation of around 5.5%
in 2009.
The dram has begun to appreciate again
against the US dollar, owing both to the US
currency’s weakness worldwide, and
continued robust inflows of overseas
remittances and other private transfers.
However, a widening current-account deficit
will reduce the rate of nominal appreciation
compared with 2007. This nominal
appreciation, in conjunction with a slightly
higher rate of inflation in Armenia than in many
of its most important trading partners, will
translate into a strong real effective
appreciation. Average annual exchange rate of
Dram 302.5:US$1 this year, followed by a rate
of Dram279.7:US$1 in 2009 is forecasted.
The metallurgy, machine-building and mineral
products sub-sectors will become increasingly
important sources of export revenue. However,
growth in import expenditure will continue to
outpace that of export earnings. Inflows of
remittances, reflected in surpluses in the
current transfers and income accounts, will
continue to offset some of the effect that the
widening trade deficit has on the current
account. Nevertheless, the current-account
deficit is expected to widen from US$ 571m in
2007 to around US$ 950m per year in 2008-
09.*
* The Economic Intelligence Unit Ltd., August 2008.
Key Information Contacts
NASDAQ OMX www.nasdaqomx.com
The Central Bank of Armenia www.cba.am
The Central Depository of Armenia www.nasdaqomx.am
2007-MAIN ORIGINS OF GROSS DOMESTIC PRODUCT (%)
2006-MAIN COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Construction
Agriculture
Trade & catering
Industry
Financial services & real estate
Other
17.3
17.5
15.7
5.2
25.6
PAGE 112
18.7
Private consumption
Government consumption
Change in stocks
Net exports of goods & services
80
70
60
50
40
30
20
10
0
-10
-20
71.7
33.3
11.3
0.3
-2.3
-14.4
Gross fixed investment
Statistical discrepancy