World Bank improved forecast of GDP growth in Armenia for 2018 from the previous 3.8% to current 4.1%

ArmInfo. The World Bank improved the forecast for GDP growth in Armenia in 2018 to 4.1% against the previously projected 3.8%. As noted in the WB's May report on the economy of Europe and Central Asia, in 2019 the forecast for GDP growth in Armenia did not change - 4%.

In this report, the WB notes that the agricultural sector of Armenia will reach a 2.5% growth in 2018 and will accelerate the growth rate to 2.7% in 2019. The industrial sector is projected to grow by 5.4% with a slowdown to 5.2% in 2019 services sector will show in 2018 an increase of 3.9% with an insignificant slowdown to 3.8% in 2019.

The growth of private consumption, according to the updated report of the World Bank, will grow by 5% in 2018 with a slowdown to 4.7% in 2019. Gross fixed investment will grow by 4.5%, with a slowdown in 2019 to 4.2%. Exports and imports for 2018 are expected to almost the same growth - by 10.1% and 10.3%, respectively, with a slowdown in 2019 to 9.8% and 9.5%.

In the consumer market of Armenia, according to the new forecast, inflation in 2018 will be 3.5%, and in 2019 - 3.8%.

The share of net foreign direct investment (FDI) in GDP in 2018 will be 4.4%, and in 2019 - 4.5%, and the ratio of current account deficit to GDP for 2018-2019 will grow from 2.9% to 3.5% . The deficit of the state budget of Armenia in GDP from 2.6% in 2018 will decrease to 2.5% in 2019. The share of national debt in GDP for 2018 is expected at 58.6%, with a slight decrease to 58.3% in 2019. The poverty level (at a purchasing power parity (PPP) of $ 5.5) could reach 38.2% in 2018, with a decline to 36.8% in 2019, and in terms of PPP of $ 3.2, the poverty level could fall in 2018-2019 from 10.1 % to 9.1%.

Armenia's economic outlook remains positive. The strong performance in 2017 suggests the opening of a window of opportunity to undertake the reforms needed to make growth inclusive and sustainable. On the assumption of sustained favorable external economic conditions and robust structural reforms, medium-term growth is forecast to be around the potential

growth rate (4 percent), supported by private- sector, export-led activity. In particular, the agribusiness, information and communication technology (ICT), and tourism sectors are expected to deliver solid growth as efforts to boost competitiveness

and connectivity start to deliver results. As the economy continues to grow and incomes rise—and remittance inflows continue to support livelihoods thanks to a benign external environment—the absolute poverty rate is forecast to decline to 8.1 percent in 2020. Although price pressures are forecast to increase in the short term, mainly due to higher customs duties and excise taxes on fuels starting in 2018, inflation is projected to remain within the official target range. The new Tax Code, which becomes fully effective in 2018, lays the foundation for better tax administration and higher tax revenues. Implementation of the upgraded fiscal rule (approved in December 2017) will result in stronger discipline for current spending and will provide some room to increase growth-friendly capital expenditures while also stabilizing and eventually reducing the public debt.

Armenia’s vulnerability to economic conditionsin Russia and its other trading partners—as well as its low level of exportdiversification—will remain high.Adverse shocks linked to the Russian recovery or metal export prices would have a negative impact on economic growth rates over the near to medium term. Fiscal slippage could trigger the need for sharper adjustments in public spending, undermining domestic demand and real economic activity. Fiscal policy should remain prudent to contain public debt levels. Avoiding fiscal procyclicality will help prevent macroeconomic imbalances and reduce the risks associated with overheating (including potential competitiveness losses) during periods of strong economic growth. Continuing coordination with the monetary authorities and the maintenance of a flexible exchange rate will be vital to avoid episodes of real exchange rate appreciation that can lead to losses in competitiveness. Sustaining robust economic growth will require bold structural reforms—such as providing a fair and competitive business and investment environment—to address

fundamental problems in Armenia's economy. Increasing country-wide access to economic opportunities will help to boost household incomes and drive a further

reduction in poverty, particularly in secondary cities where poverty is highest.

To note, in 2017, Armenia's GDP grew by 7.5%, with the agricultural sector in a 4% decline, the industrial sector showed an 8% growth, and the service sector - 10.5% growth. Private portfolios grew by 8.8%. Gross fixed investment grew by 7.3%. Exports showed growth of 23.2%, and imports - 24%. Annual inflation was 1%. The ratio of current account deficit to GDP was 1.7%, the share of net foreign direct investment (FDI) in GDP was 4.1%, Armenia's state budget deficit in GDP was 4.7%, the share of state debt in GDP was 58.8%. The poverty level in 2017 was 39.9%, down from 43.5% in 2016.