Country Report Armenia November 1998 Main report

Outlook for 1999-2000: Russ. crisis will cause trade turnover to slow

The Russia crisis will reverse Armenia's export recovery that started at the beginning of this year, and trade turnover will slow. Exports in the first eight months of this year grew by 21.4% on the corresponding period in 1997, much faster than imports, which grew by 4.3%. Exports will slow owing to lower growth in Armenia's major export markets, namely Russia and other CIS countries (these countries took 44.8% of Armenia's exports in the first five months of this year). The trade and current- account deficits will narrow in 1998 owing to lower overall trade, but they will widen thereafter until Armenia is able to redirect its trade further and Russia moves slowly out of its recession. Foreign direct investment (FDI), which surged in the first half of this year, will help reduce Armenia's reliance on foreign debt to finance the high current- account deficit. In the medium term, a continuation of the pick-up in FDI and exports will be necessary in order to maintain economic stability.

Forecast summary ($ m unless otherwise indicated) 1997(a) 1998(b) 1999© 2000© Real GDP growth (%) 3.1 5.0 3.5 6.0 Consumer price inflation (%) year-end 21.9 -3.0 10.0 7.0 average 13.9 8.5 2.1 8.0 Merchandise exports fob 232 202 194 233 Merchandise imports fob 778 685 719 827 Trade balance -546 -483 -525 -594 Current-account balance -346 -262 -281 -311 % of GDP -21.3 -14.4 -17.1 -18.2 Exchange rate (Dram:$) year-end 500 536 607 666 average 491 499 581 637 (a) Actual. (b) EIU estimates. © EIU forecasts.

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