Friday, April 12 2024 14:26

ArmInfo.The World Bank has improved its forecast for Armenia's GDP growth for 2024 from the  previous 4.7% to an updated 5.5% (against the actual slowdown in growth in 2023 to 8.7% from 12.6% in 2022). For 2025, the economic growth forecast has also been improved, but less noticeably - from the previous 4.5% to an updated 4.9%. Over the medium term, GDP growth will gradually approach the potential 4.5%, and average  inflation will rise to the targeted 4%.

This is noted in the " Europe and Central Asia Economic Update, April 2024: Unleashing the Power of  the Private Sector" Report published by the World Bank.

As the WB Outlook notes: "Growth is expected to ease to 5.5 percent  in 2024 as the surge in investment mod erates and net exports remain  negative. Growth in the medium-term is projected to gradually  converge towards the 4.5 percent potential growth rate. Average in  flation is forecasted to gradually rise to ward the inflation target  of 4 percent in the medium term. The budget deficit is projected to  deterio rate to 4.7 percent in 2024 (owing to sup port to refugees  amounting about 2 per cent of GDP), followed by fiscal consol idation  in the medium term. Capital ex penditures are expected to increase  over the medium term as a percent of GDP to address the  infrastructure gap. The cur rent account deficit is projected to  deteri orate to 3.2 percent of GDP in 2024 but to remain manageable  at around 3.5 percent in the medium term. Due to robust economic  performance and low inflation, the UMIC poverty rate is projected to  decline gradually to 47.7 percent in 2024. Downside risks are related  to ongoing ten sions with Azerbaijan, geopolitical tur moil,  integration of refugees, and a possible slowdown in trading partner  economies."

Recent developments: Growth reached 8.7 percent in 2023, exceeding  expectations. On the demand side, private consumption grew by 6.3  percent (yoy), contributing to half of total growth. Public  consumption and investment (up by 18 and 10 percent, respectively)  had a similar combined contribution. Private consumption was fueled  by a 12.5 percent increase in real average wages, improve ments in  employment, and cash transfers provided by the government to refugees  in Q4 2023. On the supply side, growth was driven by an 11 percent  (yoy) in crease in services, primarily due to growth in trade and ICT  services.  Growth in industry slowed to 5.5 percent (yoy) due to a  6.6 percent contraction in the mining sector and a slowdown in man  ufacturing growth. Construction grew by 16 percent, (yoy), while  agricultural growth remained flat. The unemployment rate decreased  from 13.7 percent in 2022 to an average of 12.5 percent in the first  three quarters of 2023, benefitting from strong economic activi ty.  The poverty rate, measured by Upper Middle-Income poverty line  (UMIC), de creased by 0.4 percentage points, to 51.3 percent in 2022.  Average inflation dropped from 8.6 per cent in 2022 to 2 percent in  2023, largely driven by declines in food and transport prices. The  Central Bank of Armenia has gradually cut the policy rate by 200  basis points since January 2023, to 8.75 percent by the end of  January 2024. Credit to the economy in 2023 increased by 22 percent  in nominal terms (yoy), dri ven mostly by an increase in dram-denom  inated loans. This lowered loan dollariza tion to 36 percent as of  end- 2023. Financial stability indicators remain sound, with the  Capital Adequacy Ratio at 20 percent and the Non- Performing Loans  ratio below 2.5 percent. However, the profitability of the banking  system declined in 2023.  The budget registered a 4.1 percent of GDP  deficit in 2023, all financed by domestic sources on a net basis.   Total revenues over performed by 3 percent compared to the original  plan, supported by a 17 percent (yoy) nominal increase in tax  collection, fu eled by strong economic growth. Current expenditures  (including social transfers to refugees) and capital expenditures in  creased by 22 and 27 percent (yoy) in nom inal terms, respectively.  The government debt increased from 46.7 percent at end-2022 to 48.1  percent end-2023.  In the first nine months of 2023, the ex port and  import of goods remained ro bust, increasing by 34 and 43 percent  (yoy in nominal USD), respectively, large ly driven by re-exports.  However, in this period the trade deficit increased to 8.8 percent of  annual GDP, from 6.3 percent in the same period of 2022.  Remittances  dropped to 4.6 percent of annual GDP, from 7.7 percent in the same  period of 2022 (affected by a 44 percent rise in the net out flow of  non-commercial money transfers). Tourism-related service inflows  increased by 47 percent (yoy) in the nine months of 2023 and partly  mitigated the deterio ration of the current account deficit, es  timated at 2.8 percent of GDP in this period. The Armenian dram  started to gradually depreciate in late 2023 and by end-2023 was 2.9  percent weaker against the USD (yoy). Gross international re serves  decreased by USD 510 million in 2023 and reached USD 3.6 billion,  covering 3 months of import.

ey conditions and challenges Armenia has weathered multiple crises  since 2020. Thanks to sound macro economic management (inflation  target ing, adherence to a fiscal rule, and sound financial sector  oversight) and government mitigation measures, Arme nia was able to  recover from the signif icant contraction in 2020 resulting from the  Covid-19 pandemic and the military conflict with Azerbaijan, while  maintain ing macroeconomic stability.  Meanwhile, large money  transfers from Russia con tributed to high average annual growth of  10.7 percent in 2022-2023. In recent years, the authorities aimed at  reducing corruption and improving the business environment, in  particular through improvement in tax and customs administration;  however, important struc tural challenges persist, resulting in an  undiversified economic structure, a nar row export base, insufficient  private in vestment, low productivity, challenges to attracting FDI,  and limited human capi tal. Armenia also faces significant geopo  litical tensions and is highly vulnerable to climate related  hazards."

"In the South Caucasus, Armenia and Georgia remained among the  fastest growing ECA economies even though the pace of economic  expansion slowed. In Azerbaijan, growth weakened sharply to 1.1  percent last year from 4.6 percent in 2022 as oil production  stagnated because of lower output in the existing oil fields," the  Bank notes.

The IMF forecasts a slowdown in GDP growth for Armenia to 5% in 2024,  and the Asian Development Bank to 5.7%. 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 Central Bank,  with the transition to a new system for developing monetary policy  (FPAS MARK II) from 2024, began to calculate the GDP forecast for  several scenarios and indicate the expected growth not at one  specific level, but in a range. In particular, according to the  forecast of the Central Bank of Armenia, GDP growth in 2024 will be  in the range of 5.3-6.4%.