Wednesday, March 31 2021 19:39
Karine Melikyan

New forecast of the Central Bank of Armenia for 2021: GDP growth by  1.4%, export growth by 1-3%, import decline 2-4%, unemployment rate  18.6%

New forecast of the Central Bank of Armenia for 2021: GDP growth by  1.4%, export growth by 1-3%, import decline 2-4%, unemployment rate  18.6%

ArmInfo.Central Bank of Armenia downgraded Armenia's GDP growth forecast for 2021 to 1.4% from previous 2%. This is set out in the Central Bank's Monetary Policy  Program for the first quarter of 2021, published on March 31, where  expectations for economic growth in the medium term are estimated at  below 3.5%.

According to the Central Bank's forecast, in 2021, in parallel with  the reduction of uncertainty, private savings will slightly decrease,  but still exceed the level of 2019. As a result, private spending  will rise by 4.3% due to private consumption growth of 4.5% and gross  private fixed assets formation by 3%, which will serve as the main  driver of economic growth this year. The impact of government  spending on economic growth will mostly be negative.

In the breakdown by industry, the greatest growth is expected in the  construction sector and the main driving force will be construction  funded by public funds, while some recovery is seen in the  construction segment funded by organizations and the population.  Relatively high growth is also expected in the agricultural sector  due to the duration of the implementation of assistance programs. A  slow recovery is expected in the industrial and service sectors. In  particular, in the service sector, growth will be modest due to  expectations of a very slow recovery of tourism, and in the  industrial sector, a slow recovery will be due to a decrease in the  volume of extraction and processing of precious metals since the  beginning of 2021.

Over the medium term, economic activity will recover at a slower pace  than previously forecast, largely due to a slower recovery in  productivity and modest growth in private investment. Under these  conditions, GDP growth in the forecast horizon will remain at a low  level and at the end of the period will form close to the estimated  long-term level of 3.5%.

According to the forecasts of international experts, the prospects  for the recovery of world tourism are negative despite the  vaccination against coronavirus, for which there is still high  uncertainty in terms of the involvement of developing countries in  this process and their possibilities for purchasing vaccines. In  addition to these factors, the uncertainty in Armenia will also have  some negative impact on the tourism recovery process in the medium  term.

For the export of goods and services, forecasts for 2021 have been  revised by the Central Bank towards an increase of 1-3%, while for  imports a decline is expected in the range of 2-4%. The ratio of the  current account deficit to GDP in 2021, according to the Central  Bank's forecast, will be in the range of 2-4%, and in the medium  term, in parallel with the recovery of the global and domestic  economy, it will gradually approach and stabilize to the estimated  balanced level of 4-6%.

Regarding the state budget, the Central Bank predicts for 2021: the  tax / GDP ratio at 22.2%, which is 0.2 percentage points (pp) lower  than the 2020 level, and the expenditure / GDP ratio at 28.5%, which  is below the level of 2020 by 2.1 p.p. As a result, the ratio of the  state budget deficit to GDP in 2021 will be 5.3%, which is only 0.1  percentage points below the level of 2020. Moreover, the deficit of  the state budget will be financed from external sources and the  dominant share will be 378.6 billion drams already received from the  placement of Eurobonds. The impact of fiscal policy on gross demand  is assessed as weakly expanding (by 0.3 percentage points). This will  be driven by a neutral income signal and a weakly expanding spending  signal. For 2022, the impact of fiscal policy is assessed as somewhat  moderate, and in 2023 it will be neutral.  In the medium term, in  parallel with the economic recovery, from the point of view of  macroeconomic stability, it is important, according to the planned  scenario and in accordance with the tax and budget canons, to  gradually reduce the ratio of public debt to GDP (according to the  state budget for 2021, the ratio of government debt to GDP will be  above 60%) by increasing tax revenues and improving the structure of  expenses.

The unemployment rate, according to the forecast of the Central Bank  of Armenia, will amount to 18.6% in 2021, and in the medium term will  decrease to 18.3% due to the gradual neutralization of the impact  from the economic recession and the coronavirus pandemic.  To note,  according to the World Bank's forecast for 2021 updated in March this  year, Armenia's GDP is expected to grow by 3.4%, against the  previously expected 3.1% and an actual 7.6% decline in 2020. In  particular, according to the WB expectations, the growth of the  agricultural sector will be 1.3% in 2021 (against the actual 1.4%  growth in 2020), the industrial sector - 1.2% (against the actual  0.9% decline in 2020), the service sector - 5.1% (against the actual  14.7% decline in 2020). The WB also predicts an increase in exports  of goods and services from Armenia by 8.7% for 2021, and an increase  in imports by 8.3%, against the actual decline in exports by 3.9% and  imports by 17.7% in 2020. The WB forecasts current account deficit in  Armenia at 4.8% of GDP in 2021 (against the estimated 4.2% in 2020).  On the state debt of Armenia, the World Bank predicts growth to 70.8%  of GDP in 2021 (from actual 67.3% in 2020). The ratio of the state  budget deficit to GDP, according to the WB forecast, will be 5.3% in  2021 (against the actual 5.1% in 2020). WB forecasts assume that in  2021 48% of the population (versus 51% in 2020), due to loss of  income, will remain below the poverty line, taking into account the  PPP-based poverty level at a cost of $ 5.5 per day.

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