Thursday, June 29 2023 12:19

ArmInfo. According to a revised  forecast by the Central Bank of Armenia (CBA), 6.9% GDP growth is  expected this year against the previously forecast 5.8% (against the  actual 12.6% growth in 2022), with a further slowdown to 5.5% in  2024. 

In absolute terms, the CBA expects the GDP to grow from AMD 8,500bln  up to AMD 9,500bln this year, with a further growth up to AMD  10,400bln, according to the CBA Monetary Policy Programme for the 2th  quarter of 2023 released late this June. 

According to the revised CBA forecast, among the drivers of economic  growth will be the construction sector (15.7), services sector  (7.8%), %), industrial sector (4.6%), agricultural sector (1.3%).  Next year, the industrial sector is expected to record 7.4% growth,  with the agricultural sector`s growth expected to reach 2.4%. The  construction and services sectors are expected to record 9.8% and  4.8% growth respectively. 

Higher unemployment level this year

Despite an upward revision of the GDP forecast in 2023 (6.9% against  the previously forecast 5.8%), the CBA has revised its unemployment  forecast downward - 13.4% against the previously forecast 12.6% and  the actually recorded 13% in 2022. The reason is a higher short-term  employment level against a high demand. In the medium term, due to  some demand adjustment and higher potential, the unemployment level  is expected to near the 15% target. In 2019-2020, 18.1% unemployment  was recorded against 17.9%, with 15.3% unemployment recorded in 2021.  

Both the officially recorded inflation (by the Statistical Committee)  and the core inflation is expected tlo reduce: from 8.9% in 2022 to  3% in 2023, and further down to 2.1% in 2024, with a rise up to 3.6%  in 2025. Both the officially recorded and the core inflation were  0.7% in 2019, far from the 4% target.  Inflation to fall short of  target

The CBA expects 0.4% inflation in 2023 against 8.3% in 2022, with the  average annual inflation to go down to 2.2% (this January-December  against last January-December) against 8.6% last year, with 3.5% and  2.8% respectively expected in 2024 and 3.7% and 3.9% respectively in  2025, nearing the 4% target. 

In its forecast, the CBA cites the FAO index, which, after going down  to 127.9 (from 143.6 in 2022) is expected to go up to 129.2 in 2024  and 132 in 2025. The oil price is expected to go down to $78.4 per  barrel (from $98.7 per barrel in 2022), with a further decline to $76  in 2024-2025. The copper price, after growing from $9,288.1 down to  $8,956 per ton in 2022, is expected to go down to $8,809.5, with an  expected rise up to $9,156 in 2024 and $9,383.2 per ton in 2025. 

Downward export and import trend in 2024 

According to the revised CBA forecast, 18.7% growth in exports is  expected in 2023 against 54.4% growth in 2022, with 22.1% growth in  imported expected in 2023 against 33.8% in 2022, a decline of 2.9%  and 4.5% respectively, with an expected growth of 4.4% and 4.6%  respectively in 2025. In 2021, both exports and imports showed growth  of 19.1% and 16.9% respectively against the respective decline of  3.9% and 17.7% in 2020, thus exceeding 9.4% and 10.8% respectively in  2019. 

The CBA designates this deceleration in exports and imports this year  as some stabilization of the rates after an upsurge in 2022. But  opportunities for exports to Russia are amplifying given some growing  potential. In terms of export of services, international visitors are  expected to continue arriving in a great numbers. IT services are  expected to continue showing a high-rate growth despite some slowdown  in the second half of 2023. 

Substantial decline in transfers from Russia, USA

According to the revised CBA forecast, the upward trend in the net  inflow of money transfers is expected in the direction of both Russia  and the USA due to a deceleration in economic activity in the  countries Armenia is cooperating with. The share of private transfers  in the GDP is expected to decrease in 2023 down to 4.5% against 8.3%,  to increase up to 4.8% in 2024 and decrease down to 4.2% in 2025. In  2022, the net inflow of private money transfers showed a sharp  increase, 3-fold, from 53.8% increase due to an increase in transfers  from Russia, which can be explained by a great number of immigrants  from Russia, who bought their capital here. 

As a result, the current account surplus/GDP ratio was 0.1% in 2022  against the 3.7% account deficit/GDP ratio in 2021, with a current  account deficit/GDP ratio of 1.7% expected this year, to be followed  by a current account deficit/GDP ratio of 1.5% in 2024 and 1.8% in  2025. The reason is the reoperation of the Amulsar mine and  subsequent positive effect from the export of precious metals. 

Revised IMF, WB forecasts 

In the first half of June 2023, the IMF and the WB revised their  forecasts predicting higher rates of economic growth in Armenia than  previously forecast.  According to the IMF forecast, 5.5% GDP growth  is expected in Armenia in 2023 against the previously forecast 4.5%.  The WB forecasts 4.4% GDP growth against the previously forecast  4.1%. This May, the EBRD revised its forecasts for GDP growth for  Armenia upward - 4% to 5%.

The IMF and WB consider economic outlook for 2023 generally positive  despite the remaining high risks.  The forecast is subject to risks  as well due to the complex foreign environment, including regional  tensions, harsher global financial conditions, slower economic growth  recorded by the major trade partners. 

According to the IMF, macroeconomic policies need to prevent  overheating of the economy in the short term, while supporting  inclusive and resilient growth in the medium term. To elaborate:

Should growth and revenues be stronger than projected, building  fiscal buffers is a priority. At the same time, revenue mobilization  efforts should continue, including by broadening the tax base and  tackling informality.

Decisive and pro-active monetary policy tightening has been  successful in containing inflationary pressures, but monetary policy  needs to remain vigilant and data dependent. Financial sector risks  related to the real estate sector require close monitoring by  strengthening supervisory tools.

To unlock Armenia's long-term growth potential, continued progress  with implementation of structural reforms is needed,including by  boosting trade links and diversification, enhancing access to  finance, completing governance reforms, and improving climate change  resilience.

According to the RA Statistical Committee, this January-May saw 12.5%  growth in economic activity against the 10.2% growth last  January-May. It was accompanied by an accelerating growth in exports  and imports - up to 93.3% and 83.3% respectively (against 27.5% and  42.2% respectively the previous year).  This May, in Armenia's food  market, the annual inflation was 1.3% against the previous 9%, which  was mainly due to a fall in prices for food and oil products, with  rising prices for services.