Precious Effect: Reasons for the 2024 Economic Growth
The economic activity index in February 2024 was 16.3%, mainly driven precisely by the growth recorded in the month of February at 11.2%.
Chart 1.
As can be seen from the chart, the trend in economic activity from the beginning of 2023 is negative, which continued until February 2024. We note that a sharp growth recorded in one month cannot serve as a sufficient basis for the assertion that the economy has overcome the trend of slowing economic growth.
In February 2024, the economic activity index increased sharply, as a result of which the year-over-year growth compared to February of the previous year was 16.3%. However, this growth is driven by a short-term factor: mainly the sharp growth of jewelry activity. Thus, of Armenia’s 8.4 billion dollar export in 2024, 21.5 percent or 1.8 billion dollars consisted of gold exports, and 7.0 percent or 589 million dollars of diamond exports. Overall, 28.5 percent of exports was the re-export of gold and diamonds from Russia to the United Arab Emirates and Hong Kong. These short-term trends are dangerous because the growth is entirely based on an external factor, which is unpredictable due to sudden changes in the external environment. We also note that in the final months of 2023, the re-export of precious stones and metals provided about 1.5-2 percentage points of additional growth to the 8.7 percent economic growth. There is a probability that activity conditioned by these external impulses might cease. A significant part of Armenia’s economic growth is provided by trade turnover; under conditions of changing external stimuli, the state of the economy could deteriorate.
Read about which branches contribute to economic growth:
🇦🇲📊🏗️ The Main Reasons for Armenia’s 8.7% Economic Growth in 2023.
The growth in jewelry activity led to a 55 percent growth in export volumes. Although this growth brings foreign currency into the Armenian economy, its positive impact is somewhat neutralized by an almost equivalent growth in imports. Under conditions of this rapid growth, traditional export branches are contracting, a contraction in the export of various categories of goods is observed. Specifically, a drop in the export volumes of the commodity groups “prepared food products” and “live animals and animal products” is observed, and the significant decline in the export of mineral products is also problematic.
Parallel to the high growth in industry, some manufacturing sub-branches crucial to the RA economy continue to experience a decline. In particular, a decline was recorded in the sub-sectors of food products, tobacco, clothing, chemicals and chemical products in January 2024. It turns out that relatively stable and long-term activity types of the manufacturing industry are decreasing, while short-term activity registers significant growth, worsening the structure of the industry.
The second chart shows the annual rate of economic growth, as well as the cumulative growth rate on an annual basis. The chart shows that the highest indicator of 12-month economic activity growth was recorded in June 2022 at 19.8 percent, followed by a slowdown in growth for the remaining months of 2022. In 2023, the maximum 12-month growth indicator was recorded in March at 14.2 percent, followed by a decline. The difference in growth during the June-October months of 2022 and 2023 is notable. In 2022 the average 12-month economic growth in those months was 18 percent, whereas in 2023 it dropped to 7.1 percent. The nearly 10 percent economic activity growth recorded in November and December of 2023 is likely connected to the re-export of gold.
Chart 2.
The third chart depicts the components of economic activity by years. We note that agriculture was reflected on a monthly basis until the end of 2018 in the current-operative macroeconomic indicators characterizing the socio-economic situation of Armenia presented by the Statistical Committee. Since 2019 the monthly agriculture data has been ignored. Agriculture constituted 12.9 percent of economic activity in 2017, and by 2023 the share of this sector had already contracted to 7.4 percent. The largest sector in economic activity is wholesale and retail trade, whose share now constitutes 42.7 percent.
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Chart 3.
The fourth chart reflects the economic components in absolute numbers.
Chart 4.
Let us examine the growth trends of five sectors composing economic activity. It is notable that agriculture is missing from the chart because agricultural indicators are presented on an annual basis. However, as can be seen from the third chart, the growth trend of agriculture is negative.
In 2024, both the construction and services sectors have negative growth trends. Over the last two years these sectors registered the highest growth rates at the beginning of 2023. Services mainly include financial and banking services. The chart shows that in this sector there is a trend tending towards almost zero percent growth. It is notable that in February 2024 a 0.3% decrease in the volume of services was recorded, along with growth in other recorded sectors.
Chart 5.
At this moment, clear growth is provided by industry and trade turnover. The growth in industry, which has occurred since November 2023, is mainly driven by the re-export of gold and precious stones. Trade, which constituted 42.7 percent of economic activity in 2023, continues to contribute to overall growth, although at a slowing pace. It is important to emphasize that the growth in trade mainly stems from the inflow of foreign capital.
Read about which branches contribute to economic growth:
PODCAST !!
Let’s Talk Numbers #1
Gasoline Prices in Armenia: How Are They Formed, How Will They Change?
- 🔘 How is the price of gasoline formed in Armenia?
- 🔘 What factors does it depend on?
- 🔘 Is it expensive or cheap?
- 🔘 Is there an internal agreement among business operators?
- 🔘 How will the price of gasoline change?
On How2B we “talk in numbers” with economist Aghasi Tavadyan.
- 00:00 The overall picture
- 02:30 Where is the price of gasoline determined?
- 05:05 Comparison of gasoline prices in Armenia and neighboring countries
- 08:38 What being in the EAEU gives Armenia regarding the import of gasoline
- 10:08 What factors form the price of gasoline in Armenia
- 14:40 The impact of the dram-dollar exchange rate on the price of gasoline
- 18:13 Lowering the price of gasoline: an economic issue or a political one
- 20:32 The price of diesel is more important for our economy
- 23:30 Will gasoline get cheaper or more expensive?
An analysis on the topic is presented on the tvyal.com website: ⛽🚗🏷️ Is the Price of Gasoline Gaining Momentum?
Media Announcement
Watch my latest interview given to 1in.am, where I discuss the economic challenges of 2024.
📺 The interview has already been watched by 10,000 people 📺
The following topics were touched upon in the interview:
- 🎯 What possible dangers for the economy could disrupt the planned 7 percent economic growth.
- 🎯 What is driving the growth of re-exports. Are 25 percent gold and diamonds in exports?
- 🎯 Construction boom in Armenia: the government is repeating the mistakes of 2002-2007.
- 🎯 What advantages will the European path give to Armenia’s economy.
