Slowdown in recession does not equate to economic growth

Armenia’s economic activity index grew by 5.7% in January-May this year. For January through April, the growth was 4.4%, indicating an acceleration in cumulative growth compared to the earlier period. The 12-month growth rate—which compares a given month to the same month in the previous year—has also picked up pace.

In May 2024, the growth rate was 6.6%, and in May this year it is already 10.4%. However, when compared to data for March last year, the trend is still downward. So, although the pace of economic growth has picked up, does that necessarily mean the economy is genuinely expanding?

If industry and foreign trade are declining, can we say that the problems in these sectors are gradually being solved? Unfortunately, no. The slower pace of decline is largely a result of comparisons with last year’s lower figures. The growth rate of the corresponding indicators in May last year was lower than in April, therefore, this year the decline in April should have been greater than in May. This is a simple statistical comparison.

For example, in April 2024, industry grew by 26.1%, while this year’s April recorded a decline of 8.7%. In May last year, industry grew by slightly less, 22%, so it is natural that the decline was less pronounced in May this year. This is the base effect in action.

Consequently, the structure of the economy is not improving, we are still largely dependent on consumption, and today’s growth in the activity index is the result of a normal statistical comparison.