Under Review: Survey predicts slowdown in economic growth amid higher-than-projected inflation in 2009

Armenia is on track for another year of double-digit economic growth bolstered by the continuing construction boom but faces a slowdown in growth next year, according to a new study by a leading global advisory organization.

Grant Thornton International’s Armenian member on Wednesday presented to the media in Yerevan the results of the organization’s International Business Report (IBR) for 2008, which reviews 34 economies of the world, including Armenia, with insight into the views of more than 7,800 privately held businesses across the countries in question.

While the report predicts a Gross Domestic Product (GDP) growth in Armenia at about 10 percent this year mainly due to a continued impressive performance of the construction industry, it also foresees that the growth will slow down a bit in 2009 and drop to the level of 8 percent.

Inflation, the report indicates, may exceed the projected level of 4 percent and amount to up to 7 percent in consequence of the rise in international prices for oil and basic foodstuffs that Armenia imports.

“The gap in imports and exports in Armenia continues to remain rather large, which is a matter of concern,” says IBR representative Gurgen Hakobyan, adding that the correlation of enterprises geared to export and import is about 30 to 70.

According to the report, the world’s most rapidly developing economies are India, Brazil, China, and Russia. Armenia has no clear rating in this category, but at the same time it is considered to be a rapidly developing country in transition.

A total of 100 large enterprises that employ staffs of 50 to 500 members participated in the IBR survey related to Armenia. Based on the answers received, the authors of the report identified and highlighted the main problems of Armenia’s businesses.

Local entrepreneurs mentioned among the primary obstacles to business in Armenia a lack of long-term funding (35 percent) and bureaucracy-related problems (28 percent). While the report shows that internationally the number one obstacle is the shortage of professional workforce (35 percent), in Armenia only 19 percent pointed at this problem. The problem of demand on the international market, which is a concern for 31 percent of businesses internationally, appears to be a lesser trouble for Armenian businesses taken separately, as only 14 percent of them indicated the problem.

The report also presents the balance of optimistic and pessimistic attitudes and expectations, concluding that a majority of the reviewed countries feel optimistic about prospects of economic development in the coming year. Interestingly, the world’s most optimistic country, according to the IBR, is India (+95), while the most pessimistic one is Japan (-49). Armenia is among the optimists with an index of +81, which, however, showed a drop by three units over 2007.