Armenia`s CB revises GDP growth forecast for 2024 upward 

ArmInfo.The Central Bank of Armenia has revised its GDP growth forecast for 2024 from the  previous 5.3-6.4% to an updated 6.8-6.1% (against 8.7% growth in  2023), depending on the formation of high or low inflation.

The absolute value of GDP will increase to 10.4-10.3 trillion drams (from  9.5 trillion drams in 2023). In 2025, according to the updated  forecast of the Central Bank, GDP growth will slow down to 6.1-3.8%,  reaching 11.5-11.1 trillion drams. This is noted in the report of the  Central Bank of the Republic of Armenia "Monetary Policy for the II  Quarter of 2024" published in mid-June.

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 include demand containment and supply expansion.

It is noteworthy that inflation under scenarios Case A and Case B is  projected for 2024 at a low level of 0.9% (according to Case A) and  1.3% (according to Case B), against deflationary 0.6% in 2023. But  already in 2025 there will be an increase to 3.8% (according to Case  A scenarios) or to 3.2% (according to Case B scenarios). Moreover,  inflation in the segment of non-exportable goods characterized by  rigid prices will decrease in 2024 to 2.9-2.7% (from 4.8% in 2023),  after which in 2025 it will either rise to 4.2%, or will remain at  2.8%.

In the sectoral breakdown, GDP growth in 2024 will largely come from  the construction sector - 12.7% (versus 15.7% in 2023), the  industrial sector - 8.3-7.5% (versus 1.7% in 2023) and the service  sector - 6.5- 5.8% (versus 11.4% in 2023), and the agricultural  sector will accelerate in growth to 3.3-2.8% (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  improve imperceptibly in 2024 to an increase of 29.6% (for exports)  and 28.6- 27.2% (for imports), with a reversal in 2025 towards a  double-digit decline in exports by 34.4-33.8% and imports by  28.6-30.6%.

The ratio of the current account deficit to GDP, according to the new  forecast of the Central Bank, from 1.9% in 2023 will decrease in 2024  to 1.3% (Case A) or 0.6% (Case B), but then growth will follow in  2025 up to 4.5% or 2.2% depending on development scenarios.

The ratio of remittances to GDP, according to the updated forecast of  the Central Bank, will continue to decline - in 2024 to 2.7-2.8%  (from 4% in 2023), and then will remain almost unchanged, fluctuating  in the range of 2.6-2.8% in 2025. 2.9%, thereby fixing the duration  of the weakening 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, in 2024 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 24.8%  to 25.5% and a more noticeable increase in the share of expenses in  GDP from 26.8% up to 30.1%.

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 grow by 2.3-2.7% in 2024 (versus 2.6% in 2023) and reduce  inflation from 4% to 3.4%. The Eurozone economy in 2024 will either  stagnate or grow slightly by 0.2% (versus 0.4% growth in 2023), with  inflation falling from 5.4% to 2.4%. The Russian economy will  continue to grow in 2024, but will either accelerate to 3.8% or slow  down to 2.5% (from 3% in 2023), with inflation rising from 5.5% to  6.9-7.1% . The price of oil in 2024 will rise to $84.8- 84.2 per  barrel (from $82.6 in 2023), which will also be observed in the price  of copper - up to $8670-8473 per ton (from $8472.1 per ton in 2023 ),  and the FAO index will drop to 121.8-121.2 (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 6% and 5.5%,  respectively. And almost identical GDP growth in Armenia is predicted  by international rating agencies for 2024, in particular S&P Global  Ratings expects a slowdown 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.