Friday, April 10 2020 18:51

ArmInfo. According to the new World Bank forecast, the GDP growth of Armenia in 2020 will be 1.7% (according to the baseline scenario), with acceleration in 2021 to  4.5% and in 2022 to 4.7%. This is stated in the WB economic report  "Fighting Covid-19. ECA Economic update''.  

Moreover, the WB believes that the likelihood of such a GDP growth in Armenia in 2020 is possible if the economy begins to recover by mid-summer. It is  expected that the slowdown in economic growth will be mitigated by  the implementation of an expanded fiscal policy, ensuring an increase  in current expenditures (social and health) and an increase in  business support and government investment.

Slowing economic growth negatively affects labor-intensive  industries. Thus, the World Bank expects a slowdown in the industrial  sector in 2020 to 3.7% with an acceleration in 2021 to 4.9% and in  2022 to 5.3%, in the agricultural sector - growth in 2020 by 2.5%  with an acceleration in 2021 to 3% and in 2022 to 3.5%, in the  service sector - a slowdown in growth in 2020 to 0.6%, with an  acceleration in 2021 to 4.7%, while maintaining this level in 2022.

In terms of exports and imports, the WB forecasts for 2020 a decline  of 1.5% and 2.6%, respectively, with a turn in dynamics in 2021  upward by 5.1% and 5.4% and an acceleration in 2022 to 6.8% and 6%,  respectively.

According to the updated WB forecast, inflation in Armenia in 2020  will be 3%, then it will rise to 3.5% in 2021 and reach the target  threshold of 4% in 2022.

The current account deficit to GDP is forecasted to be 8.9% for 2020,  after which it will go down to 8.6% in 2021 and 8.1% in 2022.

The ratio of net foreign direct investment to GDP, according to the  WB forecast, will be 1.8% in 2020, then there will be an increase -  up to 2% in 2021 and 2.4% in 2022.

The ratio of the state budget deficit to GDP, according to the WB  forecast, will be 4.7% in 2020, given the package of fiscal  assistance in the amount of 2.2% of GDP as part of measures to  prevent the spread of coronavirus and to counter the consequences  caused by it. But in the next two years, according to WB forecasts,  this indicator will already be lower - 2.7% in 2021 and 2.6% in 2022.

The WB predicts the share of the state debt of Armenia at the level  of 57.2% of GDP in 2020, with a subsequent decrease to 56.5% in 2021  and 55.8% in 2022.

The WB notes that low rates of economic growth may worsen the results  achieved in reducing poverty, up to a reversal of growth dynamics. At  best, poverty levels will be moderate. According to the updated WB  forecast, the most disadvantaged group of the Armenian population in  terms of poverty, calculated on the basis of purchasing power parity  (PPP) at a cost of $ 1.9 per day, will decrease to 1.6% of the  population in 2020 from the actual 1.7% in 2019. The conditional  average layer of the population, namely those who spend $ 3.2 a day  on existence, calculated on PPP, in 2020 may be 10.3%, against 10.8%  in 2019. And the poverty level among the widest layer of unsecured  residents of the country, who are able to spend no more than $ 5.5  per day on a daily basis, is projected by the World Bank for 2020 at  44.1%, against 45.2% in 2019. For 2021, it is forecasted to be 1.3%  (based on PPP at a cost of $ 1.9 per day), 9.2% (based on PPP at a  cost of $ 3.2 per day) and 41.3% (based on PPP at a cost of $ 5.5 per  day), and in 2022, these indicators are expected to reach 1.2%, 7.8%  and 38.2%, respectively.

But another scenario is not ruled out, in which, if measures are  extended (the probability of which is growing every day) to prevent  the spread of coronavirus, the economy will slow down or go into  decline. In the context of a dollarized economy and a narrow export  base, the challenges of managing the risks posed by the shock are  further tightened. And in this scenario, economic recovery is  expected to begin after 2020, when the shock disappears. The  likelihood that this scenario will come true is growing, taking into  account the deterioration in the world of medical, economic and  financial indicators, in which case the poverty level will increase.

Armenia's most immediate challenge is to deal with the COVID-19  pandemic. The country will be impacted by the temporary collapse in  external demand, both for goods and services. Tourism, a sector that  has been expanding robustly in recent years, is especially  vulnerable. The decline in prices for copper-one of Armenia's key  exports- will further negatively affect the external balance.   Remittances, (around 12 percent of GDP in 2018 and mostly from the  Russian Federation) are an additional transmission channel. Efforts  to contain the spread ("physical distancing" and other preventive  measures, including the imposition of a State of Emergency), will  dampen demand further. A dollarized economy and undiversified exports  add to the challenges of managing the shock. However, a relatively  healthy banking sector, a precautionary arrangement with the IMF, as  well as some fiscal buffers partly mitigate the risks.  Beyond the  COVID-19 pandemic, Armenia needs to advance reforms to improve  competitiveness and strengthen resilience to move to a path of  sustainable exportled growth.

It should be noted that the IMF updated its forecast for the GDP  dynamics of Armenia for 2020, expecting a decline to -1.5%, due to  the limitations of internal mobility and activity due to the COVID-19  pandemic, a significant decrease in external demand, tightening  financial conditions and global disruptions trade and supply chains.   The budget deficit of Armenia in 2020, according to the IMF, will  increase to almost 5% of GDP, due to lower incomes and higher  spending on health and economic support. The national debt of  Armenia, according to IMF forecasts, will exceed 60% of GDP in 2020.   The IMF announced that in mid- May 2020 it will decide on increasing  the Stand-By Arrangement for Armenia to $ 280 million (206 million  SDR).