Asian Development Bank says economic growth forecast for Armenia trimmed for 2015 and 2016

ArmInfo. Gayane Isaakyan.  In an update of its flagship annual economic publication, Asian Development Outlook 2015 (ADO 2015), ADB now sees gross domestic product (GDP) growth for the region coming in at 5.8% in 2015 and 6.0% in 2016-below the March forecasts of 6.3% for both years.

Asian Development Outlook Update for Armenia says that despite strong growth in the first half, the growth forecasts are trimmed for 2015 and 2016, as problems in Armenia's major trading partners continue to reduce trade, remittances, and investments and so depress economic growth.

GDP growth accelerated to 4.0% in the first half of 2015 from 2.6% in the same period in 2014 and to 3.5% for all of 2014. All major sectors contributed to growth, but a 4.2% slump in trade slowed growth in services to 1.8% from 3.7% a year earlier.  Agriculture saw double-digit growth at 15.5%, and industry including construction expanded by 3.7%. On the demand side, private consumption and investment declined, while public consumption showed only modest gains. The drag from the deficit in external trade and services moderated significantly, as exports fell much less than imports, ADB says in the updated report.

The current account deficit narrowed to 7.3% of GDP in 2014 from 7.6% in 2013. A slight improvement in the goods and services trade deficit was partly offset by a larger deficit for primary and secondary income, reflecting the drop in remittances. In line with this improvement, the projections for the current account deficit are narrowed for 2015 but kept unchanged for 2016.

Agriculture is still foreseen as the primary driver of growth, along with a modest contribution from industry and services. On the demand side, the pattern of growth is expected to continue for the rest of the year, with a larger deficit in external trade and services, along with weaker investment and private consumption. The lagged pass- through of currency depreciation at the end of 2014 caused average annual inflation to accelerate to 5.0% in the first 7 months of 2015 from 3.4% in the same period in 2014 and 3.0% in all of 2014.

The 12-month inflation rate of 4.2% in July remained within the central bank's target band of 2.5%-5.5%. Despite these developments, inflation forecasts remain unchanged for 2015 and 2016, as strong growth in agricultural supply, weak domestic demand, and tight monetary policy should cause inflation to recede in the months ahead.

According to the National Statistical Service of Armenia, the economic activity in Amrenia grew 23% in Aug 2015 (vs. 9.1% in Jul), 3.7% versus Aug 2014, and 3.9% for Jan-Aug 2015 vs the same period of 2014. Deflation in the consumer market for Jan-Aug 2015 totaled 2.1% amid 4.8% annual inflation.

Earlier, ADB forecasted a 1.6% GDP growth for Armenia in 2015.  According to the World Bank (WB) latest forecast, the economic growth of Armenia in 2015 would make 0.8% against expected 3.3%. The International Monetary Fund expects stagnation in Armenia economy instead of 1% downturn forecasted before. The European Bank of Reconstruction and Development (EBRD) decreased its forecast from the zero level to - 1.5%. The Asian Development Bank projects growth of the Armenian economy of up to 1.6% in 2015 and the Eurasian Development Bank - of 0.8%. The Fitch International Rating Agency forecasted moderate recession of Armenian Economy in its recent review in 2015, and the Moody's - growth of 2.3%.  According to the Armenian Central Bank's updated forecast, the economic growth in the country will increase to 2.8%-3.6% versus previously announced slackening to 1.6%- 2.6%. In 2016, the economic growth rates will not change - 2.5%-3.4%. In 2017, GDP will gradually increase to 3.5%-4.5%. According to the Law on the State Budget of Armenia 2015, real GDP growth is envisaged at 4.1%, with 4% (+1.5%) inflation. The nominal volume of GDP will total 4867.5bln drams amid 3.3% GDP deflator.