7.1% GDP Growth: "Presenting an Extraordinary Achievement is, to put it mildly, Inappropriate" - Marine Arachikyan

According to the reported economic growth figure, the indicator of development and prosperity in the economy is not solely based on this growth; what matters is how this growth has been achieved. Marine Arachikyan, director of the Center for Economic Development Initiatives and a Doctor of Economic Sciences, commented on Armenia's 7.1% GDP growth in the first quarter of 2019 during an interview with Tert.am.

“In the first quarter of 2018, GDP growth was 9.9%. This means that we have recorded a decrease of about 2.8% in growth rates compared to the same period last year. Therefore, presenting this as an extraordinary achievement is, to put it mildly, inappropriate, especially since the Gini coefficient, which reflects the polarization between the rich and the poor, is not discussed, and that polarization is quite evident in Armenia,” she stated.

According to Eurostat, Armenia is the leader in Europe with 7.1% GDP growth in the first quarter of 2019. What drives this growth? In the first quarter of 2019, the main engines of economic growth were trade and services. Economic growth has been supported by trade and services, particularly a significant share of which comes from the organization of lotteries, gaming terminals, virtual gambling, and bookmaker activities. While a 7.1% growth figure is positive, many countries have recorded higher economic growth. For instance, in 2018, Bangladesh recorded a 7.7% GDP growth, but its GDP per capita was only $1,745, with no significant improvement in the quality of life. Conversely, a leading country like Italy, where the lowest economic growth of 0.1% was recorded in the first quarter of 2019, has a significantly better quality of life, with a GDP per capita of about $34,000, whereas in Armenia, it stands at $4,188.

Therefore, the recorded economic growth figure alone does not suffice as an indicator of development and prosperity; what matters is the basis on which this growth has been achieved. Naturally, growth rates in developed countries should lag behind those in developing countries, which is a textbook truth.

Ultimately, to understand the dynamics of the economy, it is necessary to consider the growth rate as well; the GDP growth in the first quarter of 2018 was 9.9%, which indicates a reduction of about 2.8% in the growth rate compared to the same period last year. Again, presenting this as an extraordinary achievement is, to put it mildly, inappropriate, especially since the Gini coefficient, which reflects the polarization between the rich and the poor, is quite evident in Armenia.

What will the 7.1% GDP growth change in the country, and are these figures reliable? The GDP growth figure is taken from the Statistical Committee. The economic growth, driven by legislative changes related to the tax sector in 2019, as well as the sectors of trade and services that are mainly considered non-exportable (excluding tourism and IT), will be of a temporary nature, as the indicators of these sectors of the economy have not been guided by growth in export volumes. Moreover, in the first quarter of 2019, a decline of about 63% was recorded in the volumes of OUN compared to the same quarter of the previous year.

Hungary follows in second place with a 5.2% GDP growth, while Romania is third with a 5% increase. Poland and Georgia share the fourth and fifth places with a 4.7% GDP growth. What does Armenia have over these countries to achieve higher GDP growth?

The question should not be viewed quantitatively but instead in terms of the qualitative trends that have been observed. Although Hungary’s economic growth lags behind Armenia’s, it has been accompanied by increased investment volumes, export growth, and job creation. In neighboring Georgia, growth has been supported by increases in trade, transportation, real estate, and services, whereas, as mentioned, a significant portion of Armenia's GDP has been accounted for by the services sector, around 80% of which has been provided by the gaming business.