ArmInfo. The Central Bank of Armenia further improved the forecast for GDP growth for 2021 - to 5.4% (from the previous 4.6%), with a slowdown in 2022 to 2.4% and after accelerating in 2023 to 4.1%. This is stated in the Central Bank's Monetary Policy Program for Q3 2021, published at the end of September.
By industry, the Central Bank expects the highest growth in 2021 in the service sector - by 8.2%, in comparison with which the agricultural and industrial sectors will show more modest rates - 4.2% and 2.5%, respectively, and construction will be in 6 % decline. In 2022, according to forecasts of the Central Bank, the construction sector will grow and show the highest rate of 4.5%, the industrial sector will slightly accelerate the growth rate - up to 3.2%, and the service sector and the agricultural sector, on the contrary, will slow down the growth to 2.3 % and 1.5%, respectively. In 2023, the growth leader will be the industrial sector - 5%, followed by the construction, service and agricultural sectors - 4.8%, 4.1% and 2.9%, respectively.
The Central Bank expects that international tourism will recover, in parallel with which the growth of exports and imports will accelerate. Thus, for exports, the Central Bank of the Republic of Armenia forecasts growth in 2021 by 7.4%, and for imports - by 8.4%, with an acceleration in 2022 to 8.1% and 9.3%, in 2023 - to 12 % and 10.9%, respectively.
According to the new forecast of the Central Bank, inflation by the end of 2021 will form at the level of 8.4%, but by the end of 2022 it is expected to decrease to 2.3%. At the same time, real inflation in 2021 will reach an average y-o-y level of 7.1%, but in 2022 it will decrease to 4.1%, and the average y-o-y level of official inflation will be slightly higher - 7.3% in 2021 and 4.6% in 2022. But already in 2023, both official and real inflation will fall below the target threshold (4%, +/- 1.5) and will amount to 2.3% and 3.6%, respectively.
The Central Bank has further improved the forecast for 2021 on the growth of net inflow of remittances - up to 23-26% from the previous 15-18%, due to the revitalization of the Russian economy and the gradual relaxation of restrictions that restored seasonal labor migration, and the growth of remittances from labor migrants. In parallel with this, according to the Central Bank's estimates, the growth of transfers from the USA will be higher, given the more positive than expected current development.
Under these conditions, the current account deficit will slightly increase, but the range projected for 2021 will not change - 1-3% of GDP. In the medium term, according to the Central Bank's estimates, taking into account the trends of recovery in the global and domestic economies and the relatively stable behavior of international prices, the current account deficit will gradually approach the balanced level of 4-6% of GDP.
The budget deficit in relation to GDP, according to the Central Bank, will amount to 3.7% in 2021 with a decrease in comparison with 2020 by 1.7 percentage points. And despite the fact that the ratio of the state budget deficit / GDP will decrease in 2021, it will nevertheless be above the average level of 3.1% over the past 20 years. According to the Central Bank estimates, the impact on gross demand on the part of income in 2021 will be expanding by 0.8 percentage points (at the end of the year, the GDP growth rate will exceed the growth in income), and on the part of expenditures, it will be restraining by 2.4 percentage points, while in 2020 fiscal policy was perceptibly expansive.
In its new forecast, the Central Bank also revised the unemployment rate for 2021, reducing it to 15.7% from the previous 17.9% (against the actual 18.1% in 2020). And even in the mid-term, this figure will be below the pre-COVID level, in particular, the 16-17% expected by the Central Bank will yield to the average y-o-y level of 2019 of 18.9%. The Central Bank draws attention to the fact that in the short term, weak inflationary pressure will emanate from the labor market, the gradual neutralization of which in the medium term will occur as a result of accelerated economic growth and recovery of productivity.
To note, according to the updated June forecast of the WB, GDP growth in Armenia for 2021 was left unchanged - 3.4%. And the IMF, which initially gave the most conservative forecast for GDP growth in Armenia for 2021 at a scanty 1% in April, sharply improved expectations to 6.5% with the September update, but warned that the risks of a slowdown remain elevated, including due to geopolitical tensions, a slowdown in external demand and increased volatility in the global financial market. Moody's, in its August report on Armenia's sovereign rating, forecasted 4.5% real GDP growth in 2021, driven by a pickup in manufacturing, agriculture and mining, while continued weakness in services such as tourism. Moody's points to the risks of additional coronavirus waves, which will affect domestic activity, as well as reduce the prospects for a rapid recovery of the tourism industry. And Fitch, in its September report on Armenia's sovereign rating, updated its forecast for real GDP growth in the country for 2021, improving from the previous 3.2% to the current 5.5%, explaining that the risks are quite balanced, while the potential for a faster economic recovery compensates risks of renewed economic constraints due to the potential further intensification of the Covid-19 crisis in the context of the slow roll-out of vaccinations in Armenia. In its June forecast, the EDB improved its expectations for GDP growth in Armenia for 2021 by 0.9 p.p. - up to 4.2% alone, indicating a very gradual movement of the economy towards the level of its potential. This upward trend was driven by improved estimates of economic growth in Russia, the Eurozone and the United States for 2021, strong remittance inflows (both actual and expected), and higher copper prices.
It should be reminded that according to the data of the RA Statistical Committee, the decline in Armenia's GDP in 2020 amounted to 7.4%. In particular, the decline in the service sector was 14.7%, the trade sector - 14%, the construction sector - 9.5%, the industrial sector - 0.9%, and the growth of the agricultural sector was 1.4%. And already in January-May 2021, economic activity in Armenia showed an increase of 4.3% per annum, driven mainly by the construction sector (14.3%) and the trade sector (7.4%), as well as the industrial sector (2, 3%) and the service sector (0.9%).
