Wednesday, April 12 2023 17:00

ArmInfo.The International Monetary Fund (IMF) has improved its 2023 forecast for Armenia's GDP growth from the previous 4.5% to an updated 5.5% (against the actual  12.6% growth in 2022). The Fund also revised its expectations for inflation to 5.5% instead of the previously indicated 6% (from inflationary 8.3% for 2022).

For 2024, the IMF also forecasts a slowdown in Armenia's GDP growth  to 5% and a decrease in inflation to 4.5% (closer to the target of  4%, +/-1.5). The ratio of the current account deficit to GDP of  Armenia, according to the IMF forecast, will increase from 1.7% to  3.3% in 2023-2024 (vs. 0.1% GDP surplus in 2022). This is noted in  the IMF's " World Economic Outlook: A rocky recovery; Full report;  April 2023. "

Armenia's neighbors are expected to have lower economic growth

According to IMF forecasts, in 2023, GDP growth in Azerbaijan will  slow down to 3% (from actual 4.6% in 2022), and in 2024 - to 2.6%,  while inflation will decrease to 9% in 2023 and up to 7% in 2024  (from actual 13.5% for 2022). The ratio of current account balance to  GDP in Azerbaijan will sharply decrease from the actual 30.5% in 2022  to 19.2% in 2023 and to 17.4% in 2024.

Turkey's GDP growth in 2023, according to the IMF forecast, will slow  down to 2.7% (from actual 5.6% in 2022), but in 2024 the pace will  accelerate to 3.6%. Inflation in Turkey, according to the IMF  forecast, will decrease in 2023 to 45% (from the actual 64.3% in  2022), and then continue to decline to 30% in 2024.  Turkey's current  account deficit to GDP ratio will decrease from the actual 5.4% in  2022 to 4% in 2023 and to 3.2% in 2024.

IMF forecasts Georgia's GDP growth will slow to 4% in 2023 (from  actual 10.1% in 2022), but in 2024 the pace will accelerate to 5%.  According to the IMF forecast, inflation in Georgia will decrease in  2023 to 4% (from actual 9.8% in 2022), declining further in 2024 to  3%. Georgia's current account deficit to GDP ratio will increase from  the actual 3.1% in 2022 to 4.1% in 2023 and to 4.2% in 2024.

The IMF forecast report also contains expectations for Iran: a  slowdown in GDP growth in 2023 to 2% (from actual 2.5% in 2022) with  the same pace in 2024; decrease in inflation to 35% in 2023 and to  25% in 2024 (from actual 50% in 2022); reduction in the ratio of  current account balance to GDP from the actual 4.7% in 2022 to 1.8%  in 2023, but in 2024 there will be a weak growth to 1.9%.

Among EAEU countries, stagnation is forecasted for Russia and Belarus 

The IMF revised its expectations for the Russian economy to stagnate  by 0.7% in 2023 (from an actual decline of 2.1% in 2022), with a slow  acceleration to 1.3% in 2024. According to the IMF, inflation in  Russia will decrease to 6.2% in 2023 (from the actual 12.4 percent in  2022) and will decrease to 4% in 2024.  

The ratio of the current account balance to Russia's GDP will  decrease from the actual 10.3% in 2022 to 3.6% in 2023 and to 3.2% in  2024. The IMF forecasts exactly the same stagnant 0.7% GDP growth for  Belarus in 2023 (from an actual decline of 4.7% in 2022), with a  restrained acceleration to 1.2% in 2024.  The IMF projects inflation  in Belarus to decrease to 9.5% in 2023 (from an actual 12.6% in 2022)  and to decrease slightly to 9% in 2024.  The ratio of the current  account balance to GDP of Belarus will decrease from the actual 4.2%  in 2022 to 1.3% in 2023, but in 2024 there will be an increase to  1.6%.

For Kazakhstan, the IMF expects GDP growth to accelerate to 4.3% in  2023 (from actual 3.2% in 2022), and this trend will continue in 2024  up to 4.9%. Inflation in Kazakhstan, according to the IMF forecast,  will decrease to 11.3% in 2023 (from actual 20.3% in 2022), and then  drop to 6.9% in 2024. The IMF forecasts that Kazakhstan's current  account balance will decline from a surplus of 2.8% of GDP in 2022 to  a deficit of 1.9% of GDP in 2023, while remaining at minus 2% of GDP  in 2024.

For Kyrgyzstan, the IMF expects a slowdown in GDP growth to 3.5% in  2023 (from actual 7% in 2022), with slight acceleration up to 3.8% in  2024. Inflation in Kyrgyzstan, according to the IMF forecast, will  decrease to 10% in 2023 (from the actual 14.7% for 2022), and then  decrease to 6% in 2024. The ratio of the current account deficit to  GDP of Kyrgyzstan will decrease from the actual 26.8% in 2022 to 9.7%  in 2023, and further in 2024 to 9%.

Among the CIS countries, the IMF expects a sharp slowdown of GDP  decline in Ukraine to 3% in 2023 (from the actual 30.3% in 2022), but  no further trend is indicated. Inflation in Ukraine, according to the  IMF forecast, will decrease moderately - to 20% in 2023 (from actual  26.6% in 2022), while the consumer prices movement vector for 2024 is  not given. As for Ukraine's current account balance, the IMF  forecasts a surplus of 5.7% of GDP in 2022 to a deficit of 4.4% of  GDP in 2023, with no dynamics indicated for 2024.

IMF considers alternative development scenario most plausible 

Plausible Alternative Scenario: "Recent events have revealed how  greater-thanexpected fragilities in segments of the banking systems  of the United States and of other regions can cause financial sector  turmoil. The fragilities come from a combination of unrealized  losses, which reflect the speed and magnitude of monetary policy  tightening, and reliance on uninsured or wholesale funding. Further  shocks stemming from such fragilities are plausible, with potentially  significant impact on the global economy. This subsection uses the  IMF's Group of Twenty (G20) Model to analyze the economic  consequences of a scenario in which pertinent and plausible risks  materialize. The plausible alternative scenario assumes a moderate  additional tightening in credit conditions. The tightening stems from  further stress in individual banks that are vulnerable on two  metrics: share of nonretail or uninsured depositors and unrealized  losses. Funding conditions for all banks tighten, due to greater  concern for bank solvency and potential exposures across the  financial system. Stricter supervision also adds to more cautious  bank behavior. The overall impact is a decrease in the supply of  credit and higher spreads for nonfinancial firms and for households.  It is assumed that the stock of real bank lending in the United  States declines by 2 percent in 2023, relative to the baseline--  about one-tenth of the decrease experienced during 2008-09 and  equivalent to a 150 basis point increase in corporate spreads, on  average, in 2023. The tightening gradually dissipates after 2023. A  similar decrease in credit and a similar increase in spreads occur in  the euro area and in Japan. Other countries also experience a  tightening in financial conditions, with the magnitude related to how  closely correlated their respective financial conditions are with  conditions in the United States.  Countries are also affected through  trade spillovers and the impact on global commodity prices.  The  scenario assumes that monetary policy responds to the resulting  decline in economic activity and inflationary pressures, with policy  rates lower than in the baseline. Regarding fiscal policy, it is  assumed that automatic stabilizers operate but that there is no  additional legislated stimulus. Balance sheet policies and other  interventions by central banks and regulators, to preserve the  stability of the financial system, are not explicitly modeled but are  implicitly assumed to help avert a larger crisis."

Baseline Scenario: "The baseline forecast is for global output  growth, estimated at 3.4 percent in 2022, to fall to 2.8 percent in  2023, 0.1 percentage point lower than predicted in the January 2023  WEO Update, before rising to 3.0 percent in 2024. This forecast for  the coming years is well below what was expected before the onset of  the adverse shocks since early 2022. Compared with the January 2022  WEO Update forecast, global growth in 2023 is 1.0 percentage point  lower, and this growth gap is expected to close only gradually in the  coming two years. The baseline prognosis is also weak by historical  standards. During the two pre-pandemic decades (2000-09 and 2010-19),  world growth averaged 3.9 and 3.7 percent a year, respectively.  For  advanced economies, growth is projected to decline by half in 2023 to  1.3 percent, before rising to 1.4 percent in 2024. Although the  forecast for 2023 is modestly higher (by 0.1 percentage point) than  in the January 2023 WEO Update, it is well below the 2.6 percent  forecast of January 2022. About 90 percent of advanced economies are  projected to see a decline in growth in 2023. With the sharp  slowdown, advanced economies are expected to see higher unemployment:  a rise of 0.5 percentage point on average from 2022 to 2024.

For emerging market and developing economies, economic prospects are  on average stronger than for advanced economies, but these prospects  vary more widely across regions. On average, growth is expected to be  3.9 percent in 2023 and to rise to 4.2 percent in 2024. The forecast  for 2023 is modestly lower (by 0.1 percentage point) than in the  January 2023 WEO Update and significantly below the 4.7 percent  forecast of January 2022. In low-income developing countries, GDP is  expected to grow by 5.1 percent, on average, over 2023-24, but  projected per capita income growth averages only 2.8 percent during  2023-24, below the average for middle-income economies (3.2 percent)  and so below the path needed for standards of living to converge with  those in middle-income economies.

The baseline scenario assumes that the recent financial sector  turmoil is contained and does not generate material disruptions to  global economic activity with widespread recession (a broad-based  contraction in economic activity that usually lasts more than a few  months). Fuel and nonfuel commodity prices are generally expected to  decline in 2023, amid slowing global demand (see the Commodity  Special Feature). Crude oil prices are projected to fall by about 24  percent in 2023 and a further 5.8 percent in 2024, while nonfuel  commodity prices are expected to remain broadly unchanged. The  forecasts are also based on the assumption that global interest rates  will stay elevated for longer than expected at the time the October  2022 WEO was published, as central banks remain focused on returning  inflation to targets while deploying tools to maintain financial  stability as needed. Governments are on average expected to gradually  withdraw fiscal policy support, including, as commodity prices  decline, by scaling back packages designed to shield households and  firms from the effects of the fuel and energy price spikes in 2022."

Fog around world economic outlook has thickened

"Tentative signs in early 2023 that the world economy could achieve a  soft landing-with inflation coming down and growth steady-have  receded amid stubbornly high inflation and recent financial sector  turmoil. Although inflation has declined as central banks have raised  interest rates and food and energy prices have come down, underlying  price pressures are proving sticky, with labor markets tight in a  number of economies. Side effects from the fast rise in policy rates  are becoming apparent, as banking sector vulnerabilities have come  into focus and fears of contagion have risen across the broader  financial sector, including nonbank financial institutions.  Policymakers have taken forceful actions to stabilize the banking  system. As discussed in depth in the Global Financial Stability  Report, financial conditions are fluctuating with the shifts in  sentiment."

"Measures to address structural factors impeding supply could  ameliorate medium-term growth. Steps to strengthen multilateral  cooperation are essential to make progress in creating a more  resilient world economy, including by bolstering the global financial  safety net, mitigating the costs of climate change, and reducing the  adverse effects of geoeconomic fragmentation.

Prior to recent financial sector ructions, activity in the world  economy had shown nascent signs of stabilizing in early 2023 after  the adverse shocks of last year. Russia's invasion of Ukraine and the  ongoing war caused severe commodity and energy price shocks and trade  disruptions, provoking the beginning of a significant reorientation  and adjustment across many economies. More contagious COVID-19  strains emerged and spread widely.  Outbreaks particularly affected  activity in economies in which populations had lower levels of  immunity and in which strict lockdowns were implemented, such as in  China.  Although these developments imperiled the recovery, activity  in many economies turned out better than expected in the second half  of 2022, typically reflecting stronger-than- anticipated domestic  conditions. Labor markets in advanced economies-most notably, the  United States-have stayed very strong, with unemployment rates  historically low.  Even so, confidence remains depressed across all  regions compared with where it was at the beginning of 2022, before  Russia invaded Ukraine and the resurgence of COVID-19 in the second  quarter. 

With the recent increase in financial market volatility and multiple  indicators pointing in different directions, the fog around the world  economic outlook has thickened.  Uncertainty is high, and the balance  of risks has shifted firmly to the downside so long as the financial  sector remains unsettled. The major forces that affected the world in  2022- central banks' tight monetary stances to allay inflation,  limited fiscal buffers to absorb shocks amid historically high debt  levels, commodity price spikes and geoeconomic fragmentation with  Russia's war in Ukraine, and China's economic reopening-seem likely  to continue into 2023. But these forces are now overlaid by and  interacting with new financial stability concerns. A hard landing-  particularly for advanced economies- has become a much larger risk.  Policymakers may face difficult trade-offs to bring sticky inflation  down and maintain growth while also preserving financial stability,"  the source notes.

It should be noted that according to the January forecast of the  World Bank (WB), Armenia's GDP growth will be 4.1% in 2023, and a  more recent March forecast by the Central Bank forecasts GDP growth  of 5.8% in 2023. And in terms of inflation, the Central Bank of the  Republic of Armenia forecasts a decrease with a gradual approach to  the target bar in the second half of 2023 - up to 4.4%. The European  Bank for Reconstruction and Development (EBRD) expects Armenia's GDP  growth to slow down to 4% in 2023.  The Asian Development Bank  forecasts a slowdown in Armenia's GDP growth to 6.5% in 2023.  According to the forecast of the Fitch rating agency for 2023,  Armenia's GDP growth will slow down to 6.1%, and the S&P rating  agency expects the Armenian economy to grow by an average of 4.3% per  year over the next few years. The state budget of Armenia for 2023  provides for a 7% GDP growth.