ArmInfo.The European Bank for Reconstruction and Development (EBRD) has improved its 2022 GDP growth forecast for Armenia from the previous 4.5% to an updated 8%, thereby expecting more sustainable growth.
At the same time, according to the new EBRD forecasts, the slowdown in 2023 will be less gradual - to a likely 4%, and this growth estimate also exceeds the previous forecast of 2.5%. The European Bank for Reconstruction and Development (EBRD) reports in its latest Regional Economic Prospects (REP) today.
In particular, the EBRD notes in its report : "In Armenia, the solid recovery seen in 2021 carried strong growth momentum into 2022, with economic growth reaching 13.1 per cent in the period from January to July. As in Georgia, the arrival of many people and firms from Russia led to an increase of 113 per cent in foreign inflows and boosted demand for services. This has helped Armenia to finance its widening trade deficit. Foreign reserves have also increased by 20 per cent and the exchange rate by 18 per cent.'
The EBRD makes a similar forecast for the economy of Georgia in 2022, which is also significantly higher than the previously expected 3%. And for 2023, as in the earlier forecast, the EBRD forecasts a slowdown in Georgia's GDP growth to 5%. The report, in particular, notes: "In Georgia, robust growth of 10.3 per cent is supported by a pickup in tourism, which has almost reached pre-pandemic levels, and by an increase in money transfers (boosted by the temporary inflow of Russian businesses and technology-sector professionals). These trends have helped to cover Georgia's trade deficit and supported the appreciation of the lari, leading to an increase in foreign reserves. The growth is expected to continue, albeit at a slower pace of 8 per cent in 2022, which remains significantly higher than the 3 per cent growth previously predicted. For next year, the report expects this trend to moderate further to 5 per cent, in line with the previous forecast."
Georgia's current robust economic growth of 10.3% is being supported by tourism growth, which is nearing pre-pandemic levels, as well as increased remittances (bolstered by a temporary influx of Russian businesses and tech sector professionals). These trends helped cover Georgia's trade deficit and contributed to the appreciation of the lari, which led to an increase in foreign exchange reserves.
At the same time, the EBRD kept expectations for Azerbaijan's GDP growth for 2022 and 2023 at the same level (as in the May forecast) - 4.5% with a slowdown to 2.5%. The report, in particular, notes: "In Azerbaijan, the strong performance of the non-energy sector led to 6.2 per cent growth during the first seven months of 2022. The rising prices of hydrocarbons almost doubled export revenue, leading to large current-account and budget surpluses. High energy prices are expected to support the country's economic growth in the near term. The May forecast of GDP growth of 4.5 per cent for 2022 and moderation to 2.5 per cent in 2023 remains unchanged."
Strong economic performance in Caucasus amid geopolitical turmoil
The EBRD sees this in raising growth forecasts for the three countries for 2022, while expecting a slowdown in 2023. But the EBRD warns that the current economic growth in the Caucasus is largely due to temporary factors that could easily be reversed.
The report notes, in part: "The economies of Armenia, Azerbaijan and Georgia are enjoying some of their highest growth rates in years. Azerbaijan is capitalising on high levels of oil and gas revenues, as a result of elevated prices and increased export revenues, but also on the strong performance of its non-energy sector. Meanwhile, Armenia and Georgia are benefiting from an inflow of Russian businesses and information and communication technology (ICT) professionals, boosting the service sectors of these small economies. However, the robust growth recorded for the region in 2022 will taper off in 2023, highlighting concerns about its medium- term sustainability. The report warns that current growth in the Caucasus is mainly driven by temporary factors that could easily be reversed. For Azerbaijan, the uncertainty stems from energy prices but also from inflation. For Georgia, however, the risks are driven by uncertainty and the significant probability of external shocks. In the case of Armenia, these are further amplified by the country's close ties to an increasingly isolated Russian economy."
Inflation in Caucasus has gained its momentum
"During the first half of 2022, inflation in the Caucasus gained momentum due to a new wave of price rises for energy and food. The central banks of all three countries responded by raising their policy rates. Inflation has now fallen to an average of 10 per cent, which is still high but significantly lower than the average of 16.5 per cent across the EBRD regions as a whole.
Overall, the EBRD predicts growth of 2.3 per cent in output across its regions in 2022. While this is an upward revision of 1.2 percentage points relative to its May forecast, the Bank warns of subdued growth in 2023, revising projected growth figures down by 1.7 percentage points to 3 per cent."
It should be noted that according to the September forecast of the Central Bank of Armenia, expectations for GDP growth for 2022 have significantly improved - from the previous 4.9% to the updated 12.9%. This was announced by the Central Bank of the Republic of Armenia on September 13, the same day the refinancing rate was increased from 9.5% to 10%. Moreover, the Central Bank announced its forecast before the start of Azerbaijan's military aggression against Armenia this month, and in fact this factor was not taken into account in the expectations of macroeconomic indicators.
In the June forecasts of the World Bank and the International Monetary Fund for 2022, the expected growth of Armenia's GDP was improved to 3.5% and 5%, respectively (from the previous 1.2-1.3%). And the international Fitch Ratings agency, which much later (in early September) updated its forecast for Armenia's GDP growth for 2022, announced a much higher bar - 6.4% (against the previous 1.3%). But even these growth rates still fall short of the pre-Covid GDP growth of 7.6% (in 2019) and are not much different from the 5.7% growth in 2021. However, it is worth noting that economic activity in Armenia reached double-digit growth rates in February 2022, accelerating them to 13.4% per annum in January-July, while inflation in the food market has already reached 13%. These international agencies in their forecast reports note geopolitical risks (cautious approach in relations with the US, UK and EU in terms of anti-Russian sanctions, continued high tension in relations with Azerbaijan), risks of overheating (growing demand from expatriates), increased risks of stagflation, but and draw attention to the decrease in external liquidity risks (due to the growth of external reserves to a 20-year high of $3.5 billion, including the Stand-By loan from the IMF, as well as due to a jump in the inflow of transfers), and reliable support from creditors. -sh- These international agencies note not only geopolitical risks (cautious approach in relations with the US, UK and EU in terms of anti-Russian sanctions, continued high tension in relations with Azerbaijan), risks of overheating (growing demand from expatriates), risks of stagflation in their forecast reports, but they also pay attention to the decrease in external liquidity risks (due to the growth of external reserves to a 20- year high of $3.5 billion, including the Stand-By loan from the IMF, as well as due to an increase in the inflow of transfers), and reliable support from creditors.
