The ghost of recession

The fact, that economy condition isn’t brilliant, became clear this July, when Economic Activity Index (EAI) reduced by a few percentage points, as compared to the July of the previous year. The fact, that economy condition is gradually worsening, showed the forthcoming months. The fact, that economy condition, slightly said, is disappointing, was observed from the indices of October, when it turned out that EAI has reduced by 7.8%.

However, the data issued by the RA National Statistical Service (NSS) yesterday make this upsetting snapshot even more complete. Thus, NSS issued GDP data for the third quarter of 2016 (from 2011 GDP calculations are being introduced once in a quarter). In the third quarter of ongoing year Armenia’s GDP comprised AMD 1 trillion 518.3 billion.

This figure doesn’t say anything in itself. More important is the fact that GDP for the third quarter 2016 has decreased by 2.6% (real volume change). In the first quarter GDP has grown by 4.3%, and by 1.6%—in the second.

NSS doesn’t separately introduce GDP real volume change for January-September 2016 (or, in other words, economic growth. However, individual calculation isn’t a difficult job: based on published data, it turns out that in the period of January-September 2016 GDP real volume, as compared to the same period of the previous year, comprises 0.4-0.5%, i.e. rather low.

Official statistics will conclude GDP annual results already in January 2017. Instead, every month other indices are being published, in particular, EAI.

In the period of the first months of 2016 economic activity has grown by 0.4%, as compared to the previous year. On monthly basis October 2016, as compared to 2015, EAI has reduced by 7.8%. Thus, the dynamics is negative. And as serious shifts haven’t been recorded in October, it also means that upon the results of 2016 we’ll have growth close to GDP zero growth (at best), or even economic decline (at worst).

It should be noted, that prediction of GDP 2.2% real growth was lying on the state budget for 2016. It can already be stated that anticipation won’t become a reality.

As for GDP quarter indices, it should be stated that in the third quarter 2016 GDP had real growth of 2.6%. Judging from the October indices, the fourth quarter will also be decadent. This means—recession. For those with non-economic education, it should be clarified that the word “recession” originates from Latin “Recessus,” which means moderate slowdown or decline of economic growth temp. It’s considered that economy is in recession, if economic decline proceeds 2 quarters in a row and more.

In case of Armenia one of the declining quarters is already a reality (2.6% decline in the third quarter), and the next one is a rather probable variant, i.e. it may be stated that Armenia’s economy has entered a recession phase. Moreover, it’s rather probable that recession will continue in the first quarter 2017, as comparative basis (GDP for the first quarter 2016) has been rather high.

In the period of the previous Government nobody anticipated recession. Moreover, it was even touched upon in the beginning of the year, that growth, higher than anticipated, may be recorded.

There is a curious, if not strange nuance in this. Economic activity decline in October was conditioned by scandalous index mainly in the field of agriculture.

In October 2016 production in the field of agriculture comprised AMD 102.7 billion. As compared to October of the previous year, production in the field of agriculture has reduced by more than AMD 43 billion, or by about 30%. From which: plant cultivation production has reduced by about its half. The year wasn’t beneficial for agriculture, force majeure (strong hails, diseases and etc.) hasn’t been recorded. What is this sharp decline in the field of agriculture conditioned by? Grounded answer to this question hasn’t been given yet.

The most logical non-official reply is as follows: decision was made not to “draw figures.” It’s not a secret that the most vulnerable point of official statistics has been “fixed” by indices in the field of agriculture, as, basically, it’s impossible to check by alternative calculation how many tons of tomatoes or potatoes have been grown.

And if it’s so, here comes the next question: why did they decide to introduce bitter truth this time? They could continue figure-drawing for agriculture, couldn’t they?

This answer has a few questions. It should be started, from the so-called pro-state answer: if the new Government intended to go to serious changes, it should start from correct figures. Proper decisions and trust can’t be enjoyed on the basis of “fixed” figures.

The second possible reason is that currently the one responsible for these upsetting figures is not the incumbent Government, but the previous one: this indices mirror the results of the activities of the previous Cabinet. That’s why current Government doesn’t find any reason for justification.

And, finally, the third reason is measuring expectations. We have formerly stated as well, that by Karen Karapetyan’s appointment some exaggerated expectations have been shaped, people are waiting for speech reforms, which they’ll feel on their living standards. This is hazardous, first and foremost, for the new Government’s rating, as speedy changes are not possible, and there is a risk of disappointment.

That’s why it’s more proper to show that economy’s condition is good or bad. And the harder the exit condition is, the more time will be required to fix the situation. Thus, if formulated in short, for sincerity the Government intends to have the right to act freely for a lasting period.

By Babken Tunyan