EDB projects Armenia`s GDP to grow by 7.5% in 2024

ArmInfo. The Eurasian  Development Bank (EDB) projects Armenian GDP growth at 7.5% in 2024.   This is stated in the EDB Macroeconomic Review for August 2024.  EDB  expects  that the Central Bank will continue reducing its refinancing  rate to 7.5% in late 2024.  "This will only happen if inflation  remains under the CB RA target range (4+1.5%). Inflation could  accelerate to 1.5% in 2024 amid strengthening domestic demand,  moderate weakening of the national currency, and likely further  reductions of the refinancing rate. We believe that monetary policy  will gradually cease its curbing of demand in 2024. The IBL rate will  fall to 7% in 2025, which will be on a par with the CB RA's stable  inflation target range."

According to report "Armenia's economic growth rates accelerated in  early 2024. The country's economic activity rose by 13.2% YoY over  January-April, fuelled by the industry sector with its contribution  of about 5.1 p.p. of growth, accounting for +26.8% YoY over  January-April. The main sectors encouraged business activity, but  this was primarily due to concentrated growth in some industries. For  example, industry and trade grew by 26.7% YoY thanks to a manifold  increase in the processing of, and foreign trade in, goldware; the  services sector went up 3.9% YoY because of an increase in financial  activities (+16.8% YoY). At the same time, most other services and  manufacturing sectors showed weak output.

Industry growth accelerated in early 2024 because of an increase in  the processing of, and foreign trade in, exportable goldware at the  end of the previous year. Output in other key industry sectors  dropped after it peaked in 2022-2023. A 4.6-fold YoY increase in  goldware production in January-April offset the decline and slowdown  in other major industry sectors. Construction, however, is keeping up  the pace (up 13.7% YoY in January-April), bolstered by high mortgage  lending (+23.3% YoY in April). Overall lending (up 21.2% YoY in  April), significant savings, and lower consumer prices propped up  domestic demand.

Cross-border remittances amounted to $1.7 billion over January-April  2024, traditionally high, as in 2022- 2023, albeit slightly lower  (down 18.2% YoY).

Foreign trade volumes kept going up in the first half of 2024. In  January-April, exports grew by a factor of 2.8 amid increased  production and exports of goldware. Precious stones and metals  boosted exports, along with supplies of machinery and equipment, as  they rose 9-fold YoY in January-April. Imports in January- April grew  by a factor of 2.1 YoY and were mainly driven by imports of precious  stones and metals for processing and subsequent export, as well as  machinery and equipment. There were fewer motor vehicles and  non-precious metals imported, but other imports were steady in  January-April.

Prices increased for the first time in May after an extended period  of desinflation. Prices rose 0.3% in May after a 0.7% decline a month  earlier, with prices continuously falling in the food segment: for  example, food fell in price by 2 % YoY in May after a 4.5% YoY  decline in April. 4 Inflows were $5.6 billion in 2023 and $5.1  billion in 2022, compared to an average of $1.9 billion per year in  2018-2021. Republic of Armenia 19 Consumer price dynamics are uneven,  mostly owing to a decrease in the cost of imported food amid lower  prices on international markets, tight monetary conditions and the  strengthening exchange rate of the dram. Inflation is steady when it  comes to non-traded goods and services, but it slowed slightly to  2.4% YoY in March6, a bellwether of cooling inflation expectations."

The Central Bank of Armenia had a meeting on 11 June, where it  decided to reduce the refinancing rate for the ninth time in a row,  this time by 0.25 p.p. to 8%, a decision brought about by low  inflation from declining international commodity prices, the  strengthening exchange rate of the dram, and the cooling labour  market. Overall, the Bank has decreased the refinancing rate by 2.75  p.p. since it started its round of cuts in the second half of 2023.

"The country's major economic partners are likely to experience a  cooling of their economic growth in 2024, hindering remittances and  external demand on most exports. Exports, however, will not suffer  much and will still go strong due to ultra-big foreign trade in  goldware. Under the baseline scenario, we project inflation at 1.5%  YoY at the end of 2024. A disinflationary effect from global  commodity prices will curb prices, along with lower inflation  expectations and the strengthening exchange rate of the dram. The  easing by the Central Bank of the Republic of Armenia, a stimulative  fiscal policy, and higher domestic demand will accelerate inflation  in 2024. Inflation will form at the lower end of the Central Bank's  target range in 2025-2026 (4+1.5%)" the EDB Macroeconomic Review  specifies.