CBA: Inflow of foreign labor migrants and capital to Armenia has  increased projected GDP growth to 4.9%

ArmInfo. The Central Bank of Armenia improved its forecast for GDP growth for 2022 from the previous 1.6% to the updated 4.9%, noting that in the absence of an  actual inflow of international visitors, Armenia's GDP growth  estimate for 2022 would be lower - 3.6%. This is noted in the  Monetary Policy Program (MPP) of the Central Bank for Q2 2022,  published at the end of June.

In sectoral terms, the Central Bank forecasts an acceleration in  construction to 8.9% (from 3.1% in 2021) and a slight slowdown in  services to 7.5% (from 7.9% in 2021). According to the Central Bank's  expectations, the dynamics of the agricultural sector will also  improve, from a 0.6% decline in 2021 to a 2.7% growth in 2022. At the  same time, the dynamics of industrial production, on the contrary,  will worsen - from a 3.5% growth in 2021 to a 1% decline in 2022.  Against this background, in 2022 the growth of tax collections will  slow down to 4% from 7.4% in 2021.

The growth of gross fixed capital formation will accelerate in 2022  to 17.5% from 6.3% in 2021. In particular, a slight acceleration in  the growth of gross fixed capital formation in the private sector is  forecasted - up to 14.1% from 11.2% in 2021, while public investment  will jump by 31.5% in 2022 (overcoming 9.5% recession in 2021). At  the same time, government consumption in 2022 will drop by 6.8% (from  8.4% growth in 2021), while real consumption growth in the private  sector accelerates from 3.4% to 5.9%.

Citizens of Russia, Belarus and Ukraine registered more than 1,000  individual entrepreneurs in the state register of Armenia in March,  plus about 300 individual entrepreneurs in April. These are just IT  sector statistics. As a result, the volumes in the field of  information and communications increased sharply in March over April  by almost 35% y / y - up to 33.1 billion drams, a comparison of which  with the number of newly established IPs by non-residents shows that  such an increase in volumes was mainly due to the inflow of foreign  capital and labor migrants.

A large influx of international visitors and foreign capital to  Armenia has been observed since March 2022, which is associated with  the arrival of a huge number of labor migrants from Russia, whose  work there has become more difficult due to anti-Russian sanctions  against the background of the Russian-Ukrainian confrontation.  According to the studies of the Central Bank, the growth in the  inflow of international visitors and capital observed during this  period was mainly due to an increase in external demand, which was  reflected in a significant acceleration in the export of services  from Armenia. This is evidenced by the official statistical data on  international tourism, according to which the share of Russian  citizens among tourists visiting Armenia increased in the first  quarter of this yearup to 43.7% from 34.9% a year earlier.

Strong external demand is also evidenced by a jump in the volume of  some services provided, as well as a sharp acceleration of inflation  in segments of the service sector, which are characterized by rather  sharp prices. For example, in the field of accommodation and  catering, the volume of services provided in March- April  significantly exceeded not only the indicator of a year ago, but also  the pre-crisis level. 

With the arrival of international visitors, a sharp increase in  financial services was noted, as evidenced by a noticeable increase  in non-deposit accounts of non-resident individuals in Armenian banks  in March-April.  Thus, this year, from March to April inclusive,  non-resident individuals opened 3.9 thousand deposit accounts and  33.3 thousand settlement accounts in Armenian banks, against 3.5  thousand and 12.7 thousand respectively in February. According to the  new forecast of the Central Bank, official inflation in Armenia by  the end of 2022 will be 8.5%, and core inflation - 8%, against 7.7%  and 7.2% in 2021, respectively, which significantly exceeds not only  the indicators of the Corona crisis in 2020 ( respectively 3.7% and  1.3%), but also the pre-crisis meager inflation levels of 0.7%  (official) and 1.2% (core).

The forecast report of the Central Bank of the Republic of Armenia  also provides expectations for the economies and inflation of the  United States, the Eurozone and Russia for 2022. Thus, the growth of  the US economy will slow down to 1.7% (from 5.8% in 2021), the  Eurozone economy from 5.4% to 3%, and Russia's GDP will decrease by  7.4% (against 4.7% growth in 2021). Inflation in the US will  accelerate in 2022 from 4.7% to 8.5%, in the Eurozone - from 2.6% to  7.6%, in Russia - from 6.7% to 15.1%.

The price of oil will rise in 2022 to $103.3 per barrel (from $71 in  2021), copper - to $10214.2 per ton (from $9314.7 in 2021). The FAO  index, which jumped from 98 to 125.7 in 2021, will continue to rise  to 157.5 in 2022, after which y-o-y growth is expected to slow to  169.7 in 2025.

It should be noted that the World Bank revised its forecast for 2022   in early June, improving the expected GDP growth rate in Armenia from   the previous 1.2% to the updated 3.5%. In the middle of June of this   year, the Central Bank of Armenia also revised its forecast for 2022,   indicating a more optimistic GDP growth of 4.9% (against the   previously forecasted 1.6%). According to actual  statistics,   Armenia's GDP in 2021 reached a 5.7% growth (from a 7.2%  decline in   2020), while in pre-Covid 2019, growth of 7.6% was recorded.