Monday, 28 June 2010
By Hasmik Mkrtchyan
YEREVAN, June 28 (Reuters) - Armenia's economy could grow by over 6 percent in 2010, five times more than previously expected thanks to an expansion in construction and industry, Prime Minister Tigran Sarksyan said on Monday.
The landlocked former Soviet republic of 3.2 million is recovering from a slump in 2009, when the global economic crisis and a recession in close economic ally Russia prompted a sharp decline in exports and remittances.
Armenia's gross domestic product (GDP) rose 8.8 percent in the first five months of 2010 compared with the same period of the previous year. The government's revenues are 11 percent above target, giving it new optimism about full-year performance.
"I think annual economic growth (in 2010) will be more than 6 percent. If the current growth is sustained, it might be higher," Sarksyan told Reuters in an interview.
Officials had previously forecast 1.2 percent growth this year after GDP contracted by over 14 percent in 2009.
Government measures, including tax reforms, as well as capital inflows have helped the Armenian economy to recover.
"Industry and construction are two main driving forces of economic growth... But such a high share of construction in the GDP is dangerous and it should be reduced in favour of new sectors," Sarksyan said.
Sarksyan said the government was seeking to diversify the economy, with the agriculture, chemical, pharmaceutical and information industries seen as presenting the most potential.
The construction and industrial sectors grew by 12.5 and 12.0 percent respectively in the first five months of the year. In nominal terms, GDP grew to 1.0 trillion drams ($2.7 billion).
The International Monetary Fund said last month the Armenian economy could grow as much as 4 percent in 2010, doubling its original forecast and promising better loan terms. [ID:nN19257348]
Sarksyan said higher growth could help the government reduce the deficit to 4.5 percent of GDP from the 6.0 percent projected for this year and the 7.5 percent level reached in 2009.
INFLATION APPROACHING TARGET
Sarksyan said price pressure had also eased. Inflation in 2010 was expected to slightly exceed the government's forecast of 2.5-5.5 percent, he said. Last year, prices rose by 6.5 percent.
"We think annual inflation in a range of 5.0-6.0 percent is becoming realistic," Sarksyan said.
Inflation eased to 6.3 percent in May, compared to the same month of the previous year, from 6.8 percent in April, although it still remained above target.
The premier expects monthly deflation in the next two months.
Armenia's central bank decided to keep its refinancing rate at 7.25 percent in June after five consecutive months of monetary tightening, as inflationary pressure eased.
