EDB: Economic activity in Armenia remains high

ArmInfo. According to the  results of the first quarter of 2018, Armenia's GDP grew by 9.6%  compared to the same period of the previous year (11% a quarter  earlier).  Support for growth continues to have both internal and  external economic factors. A significant contribution to maintaining  high rates of economic growth in the I quarter has been the expansion  of consumer demand amid rising wages and the continuing double-digit  growth in remittances of labor migrants. This is stated in the June  Macroview of the Eurasian Development Bank (EDB).

The volume of retail trade in the first quarter increased by 3.7%  compared to the first quarter of 2017.  Restoration of external  demand and successful implementation of the plan of measures to  stimulate exports have allowed for the third year to maintain a  leading position in export development in the formation of economic  growth.

As a result of the first quarter, the value of exports increased by  34.4% compared to the same period last year. At the same time, the  expanding import of goods (the growth of the value volume in the  first quarter of 2018 by 39% by the 1st quarter of 2017) continued to  have a deterrent effect on economic activity against the backdrop of  an increase in domestic demand. The effect of the base was reflected  in the acceleration of growth in the first quarter in construction  and agriculture, where output increased by 23% and 2.2% respectively  compared to the same period last year. Several reverse dynamics in  the industry, where, despite significant support from external and  internal demand, the annual growth rate in the I quarter slowed to  8.2% compared with 16.2% a year earlier.

The improvement in the forecast for Armenia's sovereign rating also  indicates positive economic dynamics.  In March, the international  rating agency Moody's confirmed the sovereign rating of the Armenian  government's issuer of foreign currency and local currency debt at  B1, improving the outlook from stable to positive.

Leading indicators, calculated by the ECE, indicate the continuation  of high economic activity in the second quarter of this year. This is  when calculating the leading indicator indicates the dynamics of such  indicators as the volume of loans to industrial banks and the volume  of remittances of individuals.

Expanding economic activity in the first quarter of 2018 continued to  exert an inflationary pressure. As a result, the annual growth rate  of the consumer price index in March 2018 reached 3.7%, approaching  the target set by the Central Bank of 4%. Pressure on consumer prices  was also exerted by an increase in excise taxes on fuel, alcoholic  beverages and tobacco products, which is due to the introduction of  amendments to the Tax Code in connection with the need to harmonize  tax legislation within the framework of the EAEU.

In the first quarter of 2018, Armenia's public debt continued to grow  and reached about $ 6.9 billion. The increase in debt by $ 112.5  million since the beginning of this year was mainly due to the  attraction of external government debt (an increase from the  beginning of the year by $ 70.5 million).

In 2018, it is forecasted to maintain high rates of economic growth.  Stimulating monetary conditions and expansion of external demand will  support economic activity. It is expected that the country will  continue to implement structural changes in the economy that are  capable of increasing potential growth rates, primarily due to  export-oriented industries. As a result, GDP growth in 2018,  according to EDB analysts, will be 5.6% and by 2020 it will stabilize  at about 5%.

Inflation in 2018 will be 4.1% and in the medium term it is  forecasted near the target benchmark of the Central Bank. The upward  pressure on prices this year, according to the Bank's estimates, will  be driven by domestic demand and an increase in the excise tax rates.  Increasing inflationary pressures will cause a gradual reduction in  monetary stimulation of the economy. A planned increase in the  refinancing rate to its neutral level, estimated by the EDB at  7-7.5%, is expected.