Wednesday, May 22 2019 16:24

ArmInfo. For the second year in a row, Armenia remains the fastest growing economy of the EEU. In 2018, it grew by 5.2% after 7.5% a year earlier. The main reasons for  the slowdown in economic activity were a more moderate growth in  household consumption than in 2017, and a decrease in consumption in  the public sector. This is stated in the Eurasian Development Bank's  Macro-Review published today in Armenia.

According to the document, the EDB forecasts a certain acceleration  of GDP growth in Armenia in 2019, which is facilitated by an increase  in investment activity, as the extractive industry gradually adapts  to new requirements, restoring agricultural production and government  policies that support investment, export and improvement of social  conditions. In the medium term, GDP will tend to its potential level,  which we estimate at about 5% per year.

During 2018, inflation remained below the Central Bank target of 4%;  in December 2018, it was 1.8% YoY The main factor determining  inflationary trends in 2018 was the volatility of food prices after  the diminishing of yield According to our estimates, in 2019,  inflation will accelerate to 2.8%, which is due to an increase in  domestic demand as wages and credit increase. By the end of 2021,  inflation will approach the target indicator of the Central Bank of  Armenia (4%). Taking into account the economic background, the  Central Bank of Armenia did not change the refinancing rate (6%) in  2018 and, thus, supported a stimulating monetary policy. Interest  rates on loans and deposits decreased during the year. According to  our forecast of the baseline scenario, as inflation gradually  accelerates and the target level is reached, the CBA will begin a  series of rate increases, which, we expect, will have a neutral  impact on economic growth and inflation.

In 2018, in the face of growing economic activity, the government  pursued a tight fiscal policy to maintain debt and sustainability of  the budget. In the medium term, the focus of fiscal policy will  remain the same.

To note, contrary to the EDB forecast, on January 29, 2019, the  Central Bank of Armenia lowered the refinancing rate to 5.75%,  causing this decrease to weaken economic activity, lower gross demand  due to the restraining process of fiscal policy and slowdown in  private spending.