ArmInfo. Fiscal policy will continue to have a deterrent effect on economic activity in Armenia, the quarterly macroeconomic review prepared by the EDB Chief Economist Group says.
The report notes that against the backdrop of the high base of 2017, economic growth will slow down in 2018 to 3% with a gradual exit to the potential level in 2019-2020. In the period under review, high consumer and investment activity will continue to support growth, given the continuing availability of credit resources and significant support from remittances from labor migrants. The positive contribution of exports to GDP growth will be supported by stimulus measures of the government and growth in demand from the countries - major trading partners.
However, in 2018, some increase in inflationary pressures is expected. The increase in domestic demand and further approach of inflation expectations of economic agents to the target level (4% +/- 1.5%) will stimulate the acceleration of price growth. At the end of 2017, annual inflation reached the lower boundary of the target corridor by an increase of 2.6% (deflation by 1.1% a year earlier). Factors of gradual recovery of inflationary processes in 2017 were a significant acceleration of economic activity in general and consumer demand in particular, as well as an increase in world prices in commodity markets. The index of core inflation, taken into account by the Central Bank of Armenia when making decisions in the field of monetary policy, significantly accelerated in the fourth quarter of 2017 (an increase of 3.6% in December 2017 by December 2016).
The rapid growth of core inflation caused by the expansion of domestic demand creates certain risks of exceeding the inflation target in 2018, which may possibly require the Central Bank to gradually reduce the stimulus measures of monetary policy: "Acceleration of inflation may require the Central Bank to gradually increase the nominal rate refinancing (6% - editor's noted) to prevent excessive mitigation of monetary conditions and increase risks of inflation exceeding the target level in the medium term. As a result, it is predicted that inflation will gradually approach the target level by the end of 2018. >
Following the results of 2018, the EDB forecasts an increase in the consumer price index by 3.4%, in 2019. - 4.0%, in 2020 - 4.1%. GDP growth at the level of 3.0% in 2018, 3.5% in 2019 and 4.3% in 2020. The interbank REP rate is expected to be at 6.4%, 7.3% and 7.8%, respectively. The average exchange rate of the AMD to the US dollar for the year is forecasted at 481 drams in 2018, 484 drams in 2019 and 492 AMD in 2020.