Thursday, September 30 2021 19:00

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%).