CB new forecast for 2022-2023: Armenian GDP growth will slow down  from 12.9% to 4.4%, and inflation will decrease from 10.3% to the  target 4%

ArmInfo. The Central Bank of Armenia forecasts a slowdown in GDP growth in 2022-2023 from 12.9% to 4.4%, and a decrease in inflation from 10.3% to the target 4%.  This  is noted in the Monetary Policy Program (MPP) of the Central Bank for  the third quarter of 2022, published at the end of September.

It is worth noting that the improved forecast for GDP growth for 2022  to the updated 12.9% from the previous 4.9% was announced by the  Central Bank 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 sectoral context, the Central Bank forecasts an acceleration  in construction to 14.1% (from 3.1% in 2021) and in services to 19.4%  (from 7.9% in 2021). The dynamics of the agricultural sector will  also improve with the CB expectations, reaching 3.2% growth in 2022  from a 0.6% decline in 2021. At the same time, the upward dynamics of  industrial production will slow down somewhat - from 3.5% in 2021 to  3.2% in 2022. Against this background, in 2022, the growth of tax  collections will accelerate to 10.1% from 7.4% in 2021.

The growth of gross fixed capital formation will accelerate in 2022  to 19.6% 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 20.2% from 11.2% in 2021, while public investment  will reach 17.4% growth in 2022 (from 9.9 % decline in 2021). At the  same time, government consumption in 2022 will drop by 1.8% (against  8.4% growth in 2021), while real consumption growth in the private  sector accelerates from 3.4% to 13.8%.

According to the new forecast of the Central Bank, the official  inflation in Armenia will be 10.3% at the end of 2022, and the base  inflation will be 8.7%, 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% (basic). But by  the end of 2023, official inflation is expected to decrease to the  target 4%, and base inflation to 6.7%.

The forecast report of the Central Bank of RA also foresees the  expectations of the US, Eurozone and Russian economies and inflation  in 2022. Thus, the growth of the US economy will slow down to 1.6%  (from 5.8% in 2021), the Eurozone will slow down from 5.4% to 3.3%,  and Russia's GDP will decrease by 4.2% (against 4.7% growth in 2021).  Inflation in the US will accelerate in 2022 from 4.7% to 8.1%, in the  Eurozone - from 2.6% to 7.8%, in Russia - from 6.7% to 14%.

The price of oil will rise in 2022 to $101.2 per barrel (from $71 in  2021), copper - to $8820.1 per ton (from $9314.7 in 2021). The FAO  Index, which increase from 98 to 125.7 in 2021, will continue to rise  to 144.9 in 2022, after which it will drop to 142.1 in 2023, but then  the y-o-y growth will resume again, presumably to 148.4 in 2025.  .

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%). 

Much later, on September 28, the EBRD updated its forecast, voicing  an even higher bar for Armenia's GDP growth for 2022 - 8% (against  the previous 4.5%), thereby expecting more sustainable growth, but  warning of a slowdown in 2023, and noting that the current economic  growth is mainly due to temporary factors that can easily be  reversed.  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.  As a comparison, we note that the pre-Covid GDP growth in  Armenia was 7.6% (in 2019), after which a decline of 7.2% was  recorded in 2020 with a 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 13.9% per annum in  January-August, while inflation in the food market has already  reached 13%.