ArmInfo.The Central Bank of Armenia (CBA) forecasts GDP growth of 5.3% or 6.4% for 2024 - up to 10.4-10.5 trillion drams (against 8.7% growth - up to 9.5 trillion drams in 2023), depending on the formation in the economy or high or low inflation environment. In 2025, according to the Central Bank's forecast, GDP growth will accelerate slightly to 5.7-6.7%, reaching a value of 11.4-11.7 trillion drams.
This is noted in the report of the Central Bank of the Republic of Armenia "Monetary policy for the first quarter of 2024" published in mid-March.
Thus, the Central Bank, with the transition to a new improved system for developing monetary policy (FPAS MARK II), began calculating the GDP forecast under the Case A and Case B scenarios from 2024. Thus, the Case A scenarios assume monetary policy rates that exceed market expectations, given that risk and uncertainty factors may create a higher inflationary environment in the economy. Case A scenarios involve expansion of demand and contraction of supply.
Case B scenarios assume lower monetary policy rates than market expectations, given that risk and uncertainty factors can create a deflationary or low-inflationary environment in the economy. Case B scenarios involve curbing demand and expanding supply.
It is noteworthy that inflation under scenarios Case A and Case B is forecast for 2024 at an equally low level of 1.3% (against deflationary 0.6% in 2023), but already in 2025 there will be an increase to 4.6% (according to scenarios Case A) or up to 4.1% (according to Case B scenarios).
In the sectoral breakdown, GDP growth in 2024 will largely come from the construction sector - 10.8- 12.8% (versus 15.7% in 2023), the industrial sector - 5.7-6.2% (versus 1.7 % in 2023) and the service sector - 5.4-5.7% (versus 11.4% in 2023), and the agricultural sector will accelerate in growth to 2.5% (from 0.2% in 2023).
The dynamics of exports and imports, according to the Central Bank forecast, after almost identical growth in 2023 of 28.7-28.3%, will worsen in 2024 to a decline of 11-7.8% (for exports) and 3.2-7.5 % (for imports), remaining in a downward trend in 2025 - 3.6-1.1% (for exports) and 2.8-2.6% (for imports).
The ratio of the current account deficit to GDP, according to the Central Bank's forecast, will be 4.5% (Case A) or 0.8% (Case B) in 2024, against 1.9% in 2023, and will remain almost unchanged in 2025 - 4. 4% or 1.2% respectively.
The ratio of remittances to GDP, according to the Central Bank forecast, will continue to decline - in 2024 to 3.5 -3.3% (from 4% in 2023), and further to 2.9 or 2.4% in 2025, thus fixing the duration of the weakening of the economic effect in terms of the impact of transfers on the economy.
In terms of budget revenues and expenses, the Central Bank predicts in 2024 a more pronounced increase in expenses from 2.5 trillion to 3.1 trillion drams than in income from 2.4 trillion to 2.7 trillion drams, as a result of which the state budget deficit will increase from 191.6 billion to 483 billion drams. As a result, the ratio of the state budget deficit to GDP will increase from 2% to 4.6%, with a slight increase in the share of income in GDP from 23.4% to 24.4-24.2% and a more noticeable increase in the share of expenses in GDP from 26.8 % up to 30.1-29.8%.
This report of the Central Bank of the Republic of Armenia also provides forecasts for economic development and inflation in the USA, the eurozone and the Russian Federation, for oil and copper prices, and for the level of the FAO index. Thus, the US economy is expected to slow growth in 2024 to 1.9% (from 2.6% in 2023) and reduce inflation from 4% to 3%. The Eurozone economy will decline by 0.5% in 2024 (against stagnant 0.4% growth in 2023), with inflation decreasing from 5.4% to 2.4%. The Russian economy in 2024 will slow down in growth to a stagnant 0.1% (from 3% in 2023), with inflation rising from 5.5% to 8.8%. The price of oil in 2024 will continue to decline - to $81.5 per barrel (from $82.6 in 2023), which will also be observed in the price of copper - to $8076.9 per ton (from $8472.1 per ton in 2023), and the FAO index will drop to 122.7 (from 124.1 in 2023).
Meanwhile, the IMF and the World Bank predict a more pronounced slowdown in GDP growth for Armenia in 2024 - to 5% and 4.7%, respectively. International rating agencies' forecasts for Armenia's GDP growth for 2024 look a little more optimistic; in particular, S&P Global Ratings expects the pace to slow down to 6.2%, and Fitch Ratings - to 6%.
The new forecasting and analysis system adopted by the Central Bank of the Republic of Armenia (FPAS - Forecasting and Policy Analysis System) serves for the purposes of information and analytical support when making decisions on monetary policy and consists of all the elements necessary for targeting inflation: collection and processing data, monitoring the current economic situation, developing and improving models, the decision-making process on monetary policy, as well as an open communication policy. The FPAS system includes the process of developing short- and medium-term macroeconomic forecasts to assess the state of the economy and development prospects, which are taken as the basis for making strategic decisions on monetary policy. FPAS consists of 2 main stages: first - analysis of current conditions and short-term forecast; the second is the medium-term forecast.
The model has the advantage of analyzing potential actions of the Central Bank depending on the internal and external economic situation, allowing decisions on the key rate to be made based on the forecast level of inflation and other macroeconomic indicators. Thus, FPAS allows you to make a decision on the key rate for the medium term, taking into account the expected level of inflation, the structure of the economy and GDP growth.
