Country Report Armenia November 1998 Main report

Outlook for 1999-2000: Real GDP growth will slow due to Russ crisis--

Official statistics show that real GDP continued to grow at a healthy pace and reached 7.9% in the first eight months of this year compared with the corresponding period in 1997. This was helped by high growth in agricultural output and the rapid pace of investment as the government continues to press ahead with privatisations and industrial restructuring. However, a slump in demand in the wake of the Russian economic crisis will reverse this trend. The EIU has revised its estimate for 1998 real GDP growth downwards to 5%. This is only slightly lower than the government's growth projection of 6%, owing to higher than expected growth in the first eight months of 1998. Growth in 1999 is expected to slow further to 3.5% as the effects of the Russian crisis are felt more fully. A pick-up in growth is expected in 2000, when the effects of industrial restructuring as a result of privatisation feed through. In the medium term Armenia's regional isolation, which has precluded trade with its neighbours, will have to end to foster sustained economic recovery.

--and inflation will meet the government's target

Following inflation of over 20% in the first quarter over the corresponding period in 1997 (month-on-month inflation was high and averaged 2.6%), month-on-month inflation was negative for the next six months from April to September, the longest period of deflation since the introduction of the dram. This deflation was attributable to an almost 50% reduction in the price of agricultural products after a much better harvest. Higher inflation is expected in the fourth quarter, as prices of agricultural products increase after the end of the harvest and the dram depreciates more swiftly following the devaluation of the Russian rouble. EIU estimates put year-on-year average inflation in 1998 at 8.5%, just below the government's target of 9.1%, while year-end inflation will reach -3%. We forecast higher year-end inflation of 10% in 1999 and 7% in 2000 owing to the faster depreciation of the dram, which will be necessary to offset some of the effects of the continued rouble depreciation.

© 1998 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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