This year, demand is gradually stabilizing, and growth of Armenian  economy to be 4.2% - EDB

ArmInfo. The services sector remains the main driver of economic growth in Armenia.  Inflation remained unchanged  in February. The negative balance of merchandise trade declined against the backdrop of faster growth in the value of exports over  imports. The course of dram has risen. This is stated in the March "Macro Review", prepared by analysts of the Eurasian Development Bank  (EDB).

According to the report, the economic growth of Armenia, according to  the preliminary data of the statistical committee, amounted to 12.6%  in 2022 - close to the forecast of EDB analysts. Moreover, financial  and insurance activities, trade and the sector of information and  communications (an increase of 46.9%, 16.8% and 45.9%, respectively)  made the biggest contribution to the dynamics of GDP, providing  almost half of the economic growth. In terms of demand, consumer  spending (+8.1% y/y) and net exports were the main drivers. The  physical volumes of exports of goods and services increased by 54.4%  y/y, and the share of exports reached 48% of GDP (35% in 2021). EDB  analysts expect that demand will gradually stabilize this year, and  economic growth will be 4.2%.

Economic activity in Armenia increased by 10.5% y/y in January after  12.8% y/y a month earlier. The trend of a gradual slowdown in growth  continued at the beginning of this year. This is mainly due to the  dynamics of the sectors of services, trade and industry, which  indicates the gradual stabilization of demand in the country.

The volume of cross-border transfers of individuals from the Russian  Federation in January ($254 million) decreased compared to the  previous month ($362 million), but remains significantly higher than  the level of the entire first quarter of 2022.

At the beginning of the year, strong dynamics continued in almost all  sectors of the Armenian economy.  The service sector showed an  increase of 25.9% y/y in January, 70% of the dynamics was provided by  the expansion of the sectors of information and communication and  financial activities (+52.5% y/y and +30% y/y, respectively, in  January). The construction and manufacturing industries also showed  strong momentum. Manufacturing industries grew by 7.3% y/y in  January. At the same time, the decline in the mining industry  continued (-3.4% y/y). The volume of completed construction works in  January increased by 12.2% y/y, this was facilitated by construction  financed from the funds of organizations (+13.3% y/y), including  foreign investors, as well as from the state budget (2.1-fold y/y).  Almost half of the volume of construction work was carried out in  housing construction against the backdrop of high growth rates of  mortgage lending (+29.5% y/y and 1.3% on the previous month as of the  end of January).

The negative balance of trade in goods decreased in January compared  to January 2022. The foreign trade deficit amounted to $154 million  against $166.5 million a year earlier. Exports continue to outpace  imports in terms of growth in value, while , deliveries have almost  doubled year-on-year over the past six months- 1 25.9% y/y, 17.7% y/y  and 1.4% y/y, respectively, in January after 27.9% y/y, 23.9% y/y and  2.7% y/y a month earlier.

Vehicles, machinery and equipment, precious stones and metals are is  played the main role in the dynamics of exports of goods (+2.3-fold  y/y in January). Import volumes increased (+72.5% y/y in January) in  all commodity groups. In January, the volume of imports exceeded  exports 1.3-fold alone, and in the same period last year they  exceeded almost twice. The maintenance of the growth rates of goods  exports exceeding imports, among other things, contributes to the  stable appreciation of the Armenian dram.

Inflation in Armenia amounted to 8.1% y/y in February, unchanged from  the previous month. Such dynamics is associated with the acceleration  of price growth in the food segment, mainly due to the increase in  the cost of vegetable products. Inflation was held back by the  continued slowdown in price growth for all other food and non-food  products. Prices for services continued to rise in January on the  back of strong consumer demand. The main factors limiting the rise in  prices are the revaluation of the Armenian dram and the weakening of  external price pressure on imported goods. Core inflation also  continues to slow down to 9.1% y/y in January from 9.5% y/y a month  earlier. According to the results of the first quarter, according to  EDB analysts, inflation will be close to 7.2% y/y. EDB analysts  forecast price growth at 4.6% y/y by the end of this year.

Taking into account the high level of consumer demand and the  stabilization of price growth, analysts assume that the refinancing  rate will remain at the current level in March. As a result of  February, the Armenian dram revaluated against the basket of  currencies of the trading partner countries compared to the same  period of the previous year. The dram appreciated against the US  dollar by 18.0% y/y, against the euro - by 22.5% y/y, against the  Russian ruble - by 12.8% y/y. The revaluation of the dram continues  to be supported by the high level of remittances and the outpacing  growth of exports compared to imports.

The public debt of the Republic of Armenia as of the end of January  2023 decreased to 55% of GDP ($10.6 billion) from 72% of GDP at the  beginning of 2022. This was facilitated by the rapid growth of GDP,  the appreciation of the dram and the decrease in the level of  external debt.