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.