CBA keeps downgrading GDP growth forecast for 2016, this time from 2.8-3.4% to 1.3-1.8%

ArmInfo. The Central Bank of  Armenia has once again downgraded the economic growth forecast for  2016 to 1.3-1.8% versus previously forecasted 2.8-3.4%, according to  the CBA's Monetary Policy Program for Q4 2016. The CBA explains this  with slackening rates of growth in industry and services.  

By late 2017, the economic growth may total 2.8-4.3% (versus  previously forecasted 3- 4.5%) due to the effective implementation of  the governmental program on investment and export promotion, gradual  improvement of the foreign economic situation and influence of the  ongoing structural reforms. The long-term balanced economic growth is  estimated at 4-5%, while current estimation is 1-1.5%. 

In the industrial sector, the growth forecast for 2016 has been  downgraded to 5.5-6.1% versus previous 7.9-8.7%; in construction the  forecast has been once again downgraded to negative 1.8-2.6% (versus  the previous forecast from negative 1.3% to negative 0.5%); in  services the growth forecast has been downgraded to 2.2- 2.6% versus  previous 3.8-4.4%; in agriculture the growth forecast has been  downgraded to 0.7-0.1% versus previously forecasted 1-1.8% growth. In  the foreseeable future the growth of industry will stabilize within  5-6%, the services will grow by 3-4%, construction will grow by  0.5-1%, agriculture will improve dynamics from negative to positive  4-5%. 

According to the CBA's forecast, in 2016 the amount of individuals'  transfers will be 6-8% (in terms of USD). This demonstrates a decline  slowdown from 9-12% as compared with the forecast made in early 2016.  However during 2017 positive dynamics of transfers within 4-6% will  be registered related to forecasted recovery of economic growth in  Russia.  

Forecast of the deficit of the current account against GDP remains  the same: 2-3% with slight reduction in 2017 to 1.5-2.5%, stabilizing  within 1-2% in the mid-term outlook.  The CBA says that export of  commodities and services will grow by 14% (versus previously  forecasted 11-13%), while import will stagnate at 0% (versus previous  forecast of 1.5-3.5% decline), while in 2017 in conditions of weak  world demand maintenance of low level of prices on metals and  slackening of growth rates in industrial sector, growth of export  will slacken to 4-6%, while growth of import will slacken to 0-2% due  to continuing weak domestic demand. 

To recall, the International Monetary Fund (IMF) has upgraded its  forecast for Armenia's economic growth in 2016 to 3.2% from  2.25-2.5%, with acceleration to 3.4% in 2017.  Besides, IMF in its  report forecasts that prices in Armenia will decline by 0.5%. The  World Bank in its November report has upgraded its forecast of  Armenia's economic growth to 3.1% (vs previous 1.9%), and 3.3%-3.6%  in 2017-2018. EBRD forecasts 2% economic growth in 2016. 

The state budget of Armenia fixed 2.2% GDP growth in 2016, deflator  index - 4%, 12- month inflation - 4% (+1.5%). According to the  National Statistical Service of Armenia in Jan-Oct 2016, the economic  activity growth in Armenia slackened to 0.4% from 3.5% in Jan-Oct  2015. Services and industry remained the driving force of economic  activity:  services grew by 7.7%, and industry - by 6.5% versus  Jan-Oct 2015. Export in Jan-Oct 2016 grew by 19.8% y-o-y, while  import dropped by 0.3% versus 2.2% and 26.6% decline respectively in  previous year. According to the Central Bank, in 2015 the amount of  individuals' transfers to Armenia dropped by 24% to $1.6 bln, while  the transfers from Armenia declined by 16% to $0.8 bln. Russia had  the biggest share in both the inflow and outflow - 63% and 37%,  respectively. The net inflow of transfers to Armenia from Russia  started dropping in 2014 (down 13%) following growth in the previous  four years: in 2010 - by 24%, in 2011 - by 25%, in 2012 - by 18.2%,  in 2013 - by 7.2%. Over the past 2 years, the inflow of transfers  from Russia to Armenia dropped by almost $730 mln, in 2015 alone - by  $554 mln versus 512mln USD decline in the crisis-affected year 2009.