Wednesday, October 6 2021 19:16
Karine Melikyan

World Bank`s forecast on GDP growth in Armenia for 2021 turned out to  be more optimistic than the forecast of the Central Bank of Armenia -  6.1% versus 5.4%

World Bank`s forecast on GDP growth in Armenia for 2021 turned out to  be more optimistic than the forecast of the Central Bank of Armenia -  6.1% versus 5.4%

ArmInfo. The World Bank improved its forecast for GDP growth in Armenia for 2021 from the previous 3.4% to the updated 6.1%, suggesting, as the economy enters the phase of economic recovery, gradually abandon government support measures  and focus on creating a competitive business environment that is a  key aspect for sustainable recovery, resilience to future crises and  long-term economic growth.

This is stated in the new October WB  report " Europe and Central Asia Economic Update. Competition and  Firm Recovery Post-COVID-19".

According to the sectoral breakdown, the World Bank sees the service  sector as growth drivers of the Armenian economy in 2021 - with a  7.4% growth (out of a 9.8% decline in 2020), the agricultural sector  - with a 6.4% growth (out of 4.1% decline in 2020) and the industrial  sector - with access to 3.5th growth (out of 3% decline in 2020). But  in the medium term (in 2023), the service sector and the agricultural  sector will slow down growth rates to 5.9% and 3.9%, respectively,  and the industrial sector, on the contrary, will accelerate growth to  5.1%.  

The report notes, that in the absence of renewed lockdowns or serious  domestic or regional instability, the economy is expected to return  to pre-COVID output levels by mid-2022. Private consumption will  continue to drive the recovery as rising employment rates, wage  levels, and remittance inflows bolster household incomes. Private  investment growth is expected to accelerate, while fiscal  consolidation may slow the growth of public investment. The  government's medium-term expenditure framework anticipates a  narrowing of the deficit from 5.1 percent of GDP in 2020 to around 2  percent in 2023, contributing to a decline in the public debt-to-GDP  ratio from 67.4 percent at end-2020 to 63.4 percent in 2023.

The World Bank assumes that in 2021 46.4% of the population of  Armenia (against 50.2% in 2020), due to the loss of income, will  remain below the poverty line, with the calculation of the poverty  level on the basis of Purchasing Power Parity (PPP) at a cost of $ 5  .5 per day. Subsequently, the WB expects this indicator to decrease  to 42.8% in 2022 and 39.5% in 2023.  While output is projected to  rebound rapidly, the more gradual recovery of the labor market will  attenuate the impact of renewed growth on poverty and inequality.   Increased generosity of support measures and improved program  targeting could help minimize the long-term impact of the economic  shocks of 2020 on economic opportunity, household vulnerability, and  gender parity. 

 The average inflation rate is forecast to remain above the CBA's  target band in 2021, but it should converge with the 4 percent target  in the medium term as monetary policy anchors inflationary  expectations. Elevated inflation rates will adversely affect  distributional equity and household welfare. The current-account  deficit is projected to narrow in 2021 and then widen over the medium  term as imports fully recover. FDI inflows are expected to increase  but will remain low.

The current account deficit, according to the WB forecast, will  decrease in 2021 to 3% of GDP (from 3.8% in 2020), and then increase  in the medium term (to 4.1% of GDP in 2022 and 5.3% of GDP in 2023)  as imports fully recover to 12.8% growth in 2023 (from a 31.7%  decline in 2020), after accelerating in 2021- 2022 from 5.6% to 9.5%.   For exports, the WB also predicts a 6.5% growth in 2021 (from a 32.4%  decline in 2020), with an acceleration in 2022 to 10.8% and in 2023  to 12.5%. The WB expects FDI inflows to Armenia to increase, but  remain low - 1.7% of GDP in 2021, with an increase in 2022-2023 to  2.3-2.6% of GDP.  The volume of greenhouse gas emissions, after a  7.6% decline in 2020, will grow by 5.3% in 2021, and will continue to  grow by 4.5-4.8% in 2022-2023. CO2 emissions from the combustion of  fossil fuels in the energy sector will amount to 60.9% of the total  in 2021 (versus 60.2% in 2020), with a subsequent increase to 61.3%  in 2022 and 62% in 2023.  The report notes, that the risks to the  outlook are balanced. The key downside risks are limited progress in  COVID-19 vaccinations, rising COVID-19 cases, geopolitical tensions,  and a delayed recovery among major trading partners. On the upside,  greater political certainty may enable renewed progress on the  implementation of structural reforms while accelerating public  investment. WB points to the fact that 

According to WB's forecast the pandemic's devastating effects on per  capita income growth, poverty, and inequality will reverberate for a  protracted period. Per capita income losses incurred in 2020 will not  be fully unwound by 2022 in a majority of EMDEs (emerging markets and  developing economies), including a handful in Europe and Central Asia  (ECA). Additionally, the per capita income catch-up with advanced  economies has slowed and even reversed in some cases . By end-2021,  about 100 million people are expected to fall back into extreme  poverty.  The pandemic has also exacerbated inequality as it has  disproportionately affected vulnerable groups-including women,  schoolage children, and informal and unskilled workers. Global  activity, while robust, likely plateaued in the first half of 2021,  with incoming economic data pointing to a loss of momentum amid the  ongoing effects of the Delta variant. 

The continued outbreak of COVID-19-especially in light of the  emergence of new variants that are more virulent and resistant to  vaccines-has cast a long shadow over the strength of the global  recovery. In particular, global growth could falter if the ongoing  effects of the Delta variant continue to disrupt activity. Recent  developments in East Asia and the Pacific (EAP) highlight the  importance of this risk. In EAP, low vaccination rates combined with  the more transmissible Delta variant contributed to severe COVID-19  outbreaks and dented activity. As a result, Consensus survey data  point to downgrades to near-term growth forecasts. A further  deterioration in growth outcomes in EAP could weaken the external  outlook for other EMDEs, including those in ECA that rely on  industrial commodity exports or have deep trade linkages with EAP.   Disruptions from the pandemic have also contributed to existing  supply bottlenecks, which, if sustained, could slow the recovery in  global trade and put further upward pressure on prices.  The risk of  financial market stress also remains pronounced, especially following  last year's rapid buildup of government and corporate debt. This  followed on the heels of a decade of rapidly accumulating debt after  the global financial crisis. In an environment of elevated debt,  financial stress could be triggered by a number of shocks that  unexpectedly increase borrowing costs. A sudden increase in interest  rates could stem from a rise in risk aversion, inflation, or  expectations of faster monetary tightening. In some countries, there  is a risk that the recent acceleration in inflation due to commodity  price increases and currency depreciation could de-anchor inflation  expectations. For EMDEs that have borrowed heavily in foreign  currency, that have substantial upcoming redemptions that need to be  rolled over, or that have limited foreign exchange reserves, a  sustained pick-up in inflation could drive further depreciation,  exacerbating currency mismatches. This could result in significant  outflows of the volatile portfolio flows that are often used to  finance current account deficits. 

For all EAEU countries, the World Bank predicts economic growth for  2021, but lower than in Armenia: in Russia - by 4.3% with a slowdown  to 1.8% in 2023, in Belarus - by 1.2% with an acceleration to 2, 3%  in 2023, in Kazakhstan - by 3.5% with an acceleration to 4.8% in  2023, in Kyrgyzstan - by 2.3% with an acceleration to 4.3% in 2023.   In neighboring Georgia, the World Bank expects GDP growth in 2021 by  8% with a slowdown to 5% in 2023, and in Azerbaijan, GDP growth from  5% in 2021 will slow down to 2.7% in 2023.  To note, the  International Monetary Fund (IMF) in September sharply improved its  forecast for GDP growth in Armenia for 2021 to 6.5% from the previous  1%, but warned: geopolitical tensions, slowing external demand and  increased volatility in the global financial market. The new wave of  Covid-19 infections can also pose a danger, and in this context, the  rapid increase in the number of vaccinations is highly welcomed. " 


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