CBA forecast: Consequences of Coronavirus to slow down Armenia`s GDP  growth in 2020 to stagnant 0.7%

ArmInfo. According to the forecast of the Central Bank of Armenia, the impact of coronavirus on the economy will slow down the growth of Armenia's GDP in 2020 to a  stagnant 0.7% (from the actual 7.6% growth in 2019). In 2021, growth  is expected to recover to 7.2%. This is stated in the Central Bank's  monetary policy program for the first quarter of 2020, published  today.

The Central Bank forecasts  that the spread of coronavirus (COVID-19)  and the tough measures taken to prevent the spread of the pandemic  will significantly suppress economic activity in 2020. Moreover, the  main negative impact from this will be felt in the II quarter of this  year, after which, in parallel with a decrease in uncertainty, the  economy will gradually return to the normal course of development  with the restoration of the potential level.

According to the Central Bank's expectations, the negative impact of  measures to prevent the spread of the coronavirus pandemic will  affect all sectors of the economy, but the tourism and entertainment  sectors and segments closely related to them are the most vulnerable.  Despite the expected short-term impact of the pandemic, the duration  of the pandemic remains a priority risk, which will significantly  affect economic activity, the structure of the economy and the  potential for further development of the economy.

In the context of the above proposed development progress, the  Central Bank predicts that the GDP gap will remain in a negative  background, which can be mitigated by the stimulating effect of a  broad monetary policy and the expected steps of the fiscal policy. In  the forecast horizon, along with a decrease in uncertainty, economic  growth will pull up to a balanced medium-term level.

Foreign trade forecasts by the Central Bank for 2020 are also  pessimistic, in particular, imports are expected to fall by 9-11%  (against actual growth in 2019 by 9.1%) and exports by 5-7% (against  actual growth in 2019 by 10.3%), which will have a negative impact on  real GDP. This is due to new forecasts for a decrease in global  demand, the expected development of the domestic economy against the  background of tough measures to prevent the spread of coronavirus in  Armenia's trading partner countries.

On unemployment, the Central Bank expects a balanced growth level,  which will  depend on the severity of measures taken by the RA  government. And in the medium term, the Central Bank predicts an  annual decline in unemployment by 0.8-1.2 percentage points,  approaching by the end of the period to 17.3% (the same figure  appears in the previous forecast). The growth of nominal wages in the  private sector in 2020 will remain at the level of 7.7%, with the  slowdown in 2021 to 7.3%, and at the end of the forecast horizon it  will stabilize close to 8.2%.

According to the forecast of the Central Bank, a significant  reduction in the money transfers of individuals in 2020 is expected  to be 16-19% (against the actual 9.7% increase in the inflow of  transfers in 2019, moreover, from Russia - with the trend coming out  of the recession by 0 0.6%) due to a slowdown in the Russian economy  and a significant devaluation of the ruble in the face of a sharp  decline in oil prices. In parallel, a temporary ban on entry into the  country, introduced by Russia as part of measures to prevent the  spread of the coronavirus pandemic, will have a significant impact on  the decline in remittances. It is worth noting that, according to the  Central Bank of the Republic of Armenia, in 2019, the share of Russia  in the structure of the inflow of transfers of individuals decreased  from 59% to 54%.

Under these conditions, the ratio of the current account deficit to  GDP will be in the range of 7-9% in 2020, and in the medium term with  the restoration of the normal course of economic development, it will  gradually approach a balanced level in the range of 3-5%.  Meanwhile,  in a previous forecast report published in December 2019, the Central  Bank for 2020 expected recovery of growth rates of money transfers of  individuals to 7-9%, a slowdown in export growth to 6-8% and a  decline in imports by 0-3%. But at that time there were no challenges  foreseeing a worsening situation; moreover, global coverage of  coronavirus began to be observed from mid-February, in connection  with which, in a new forecast report, the Central Bank in its  estimates took into account the economic impact coming from a  pandemic.  To note,  according to the updated this January World Bank  forecast for 2020 Armenia's GDP growth will slow down to 5.1%. The  IMF in its early forecast also expected a slowdown in Armenia's GDP  growth in 2020 to 4.5% (no updated version yet). The 2020 state  budget of the Republic of Armenia provides for a 4.9% GDP growth.