Saturday, October 27 2018 15:05

ArmInfo.The World Bank has updated the outlook for Armenia's foreign trade in 2018, accelerating import growth to 16.9% and slowing export growth to 9.1%, from  previously projected 10.3% and 10.1%, respectively.

This is noted in the October report of the WB "Macroeconomic Development of Armenia". For 2019, the World Bank forecasts the growth of exports by 8% in  Armenia's foreign trade, while imports will grow by 11.8%, against  the previously forecasted 9.8% and 9.5%, respectively. For 2020, the  World Bank predicts export growth by 7.9%, and imports - by 9.2%.

The share of net foreign direct investment (FDI) in GDP, according to  the new forecast of the World Bank, in 2018 will be 3% (against the  previous 4.4%), in 2019 - 3.5% (against the previous 4.5%), and in  2020 - 3.9%. The ratio of the current account deficit to GDP in 2018  and 2019 will remain at the level of 3.8% (versus the previously  forecasted 2.9% and 3.5%, respectively), with a decrease in 2020 to  3.7%. The deficit of the state budget of Armenia in GDP, according to  the new forecast of the World Bank, from 2.6% in 2018 will decrease  to 2.4% in 2019, with a further decrease to 2.2% in 2020. The poverty  level (at purchasing power parity - PPP - $ 5.5), according to the  new forecast of the World Bank, can reach 38% in 2018 with a decrease  to 35.9% in 2019 and 34.9% in 2020, and in PPP $ 3.2 poverty may  decrease in 2018- 2019 from 9.8% to 8.6% with a further decrease in  2020 to 7.6%. The previous forecast of the World Bank provided for  higher rates: the level of poverty (with PPP of $ 5.5) in 2018 -  38.2% with a decrease to 36.8% in 2019, and in expectation of PPP of  $ 3.2 by the level of poverty in 2018-2019 from 10.1% to 9.1%.

The growth of private consumption, according to the updated World  Bank report, will amount to 6.7% in 2018, with a slowdown in  2019-2020 from 6% to 4.6%, against the previously forecasted 5% in  2018 and 4.7% in 2019. In gross investment in fixed assets, the new  WB forecast provides for an increase in 2018 by 15.2%, with a  slowdown in 2019 to 14% and in 2020 to 9.9%.

Armenia's economic outlook remains generally positive. Prudent  macroeconomic policies, low inflation, and favorable terms of trade  will continue to support economic expansion. Real GDP growth is  expected to moderate to 5.3 percent in 2018, reflecting strengthening  headwinds in Armenia's main trading partners. Inflation will edge up  but remain within the CBA target range, while the current account  deficit will widen on account of a higher import bill.  Subject to  robust structural reforms- which the new government has committed to  undertake to create a fair and competitive business environment-  growth in the medium term is projected to average 4.5 percent, with  investment providing a major contribution. Commitment to the fiscal  rule, which puts a cap on debt at 60 percent of GDP but also  introduces operational rules at lower public debt levels, will result  in a smaller fiscal deficit. Consequently, public debt (including CBA  debt) is projected to fall from 58.9 percent of GDP at end-2017 to 55  percent by 2020. As the economy continues to expand and create income  generation opportunities, especially in sectors that employ  low-skilled workers (such as agriculture), poverty will continue to  recede. The expected growth of the Russian economy in the coming  years, albeit modest, should help sustain the flow of remittances to  Armenia, pushing poverty rates down further.  Current projections  have the absolute LMIC poverty rate reaching 7.6 percent in 2020;  when the international poverty rate (IPL) is forecast to fall below 1  percent.

Growing regional and global risks could undermine Armenia's  medium-term growth prospects. These risks include a  stronger-than-forecast economic slowdown in Armenia's key trading  partners (primarily Russia and the Islamic Republic of Iran) and a  decline in global copper prices in response to rising global trade  tensions, which would highlight Armenia's limited diversification and  crimp growth. Domestically, political risks remain high, reflecting  growing tensions as the policy initiatives of the new administration  are challenged by the opposition. Uncertainty also surrounds the date  and format for the snap parliamentary elections announced by the new  government. Failure to produce tangible results in a reasonable  timeframe that address widespread socio-economic problems- such as  limited job opportunities and the perception of a lack of rule of law  and rampant corruption-potentially risks reactivating domestic  tensions. The materialization of any of these risks will negatively  impact Armenia's ability to implement the bold structural reforms  that are essential for sustainable and inclusive economic growth.  However, the peaceful revolution of April-May 2018 did not disrupt  the positive trends in Armenia's macroeconomic indicators. Although  political developments in 2018 put some pressure on the exchange  rate, a quick resolution and prompt central bank reaction maintained  stability. So far, spillovers from the turmoil in the Russian  Federation and Turkey have been contained. The banking sector  indicators point to a high system-wide Capital Adequacy Ratio (18.2  percent at end-June 2018), manageable levels of non-performing loans  (6.3 percent in June, unchanged from a year earlier) and recovering  profitability, but also vulnerability to external shocks. Driven by  dram-denominated lending and supported by falling bank lending rates,  credit growth accelerated to 18 percent y/y at end-July. Deposit  growth expanded by 7 percent y/y, also driven by dramdenominated  deposits. Dollarization ratios remain high at around 60 percent.

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