ArmInfo. The Central Bank of Armenia has worsened its GDP growth forecast for 2024 lowering it from the previous range of 6.8-6.1% to a new range of 6.5-5.8% (compared to 8.3% growth in 2023), depending on the formation of high or low inflation.
The absolute value of GDP will increase to 10.2-10.1 trillion AMD (from 9.5 trillion AMD in 2023). The GDP growth forecast for 2025 has also been adjusted, moving from the previous 6.1-3.8% to an updated 5.9-3.7%, reaching a value of up to 11.2-10.9 trillion AMD. This is noted in the September report of the Central Bank of the Republic of Armenia "Monetary Policy for the III quarter of 2024".
With the transition to a new and improved system for developing monetary policy (FPAS MARK II), the Central Bank began calculating the GDP forecast according to the Case A and Case B scenarios starting in 2024. Thus, the Case A scenarios assume monetary policy rates that exceed market expectations, considering that risk and uncertainty factors can create a more inflationary environment in the economy. The Case A scenarios envisage expanding demand and restraining supply. On the other hand, Case B scenarios assume lower monetary policy rates than market expectations, as risk and uncertainty factors may create a deflationary or low inflationary environment in the economy. Case B scenarios envisage demand containment and supply expansion.
It is noteworthy that inflation under these scenarios is projected to be slightly higher in 2024 at 2.1% (according to Case A) and 2% (according to Case B), than the previously presented 0.9% and 1.3%, respectively, against the deflationary 0.6% in 2023. But already in 2025, there will be growth to the target 4% (according to Case A) or to 3.2% (according to Case B). Moreover, inflation in the segment of non- exportable goods, characterized by rigid prices, will decrease in 2024 from the previous 2.9-2.7% to an updated 2.5% (from 4.8% in 2023), after which it will increase to 3.3-2.8% in 2025. In the sectoral breakdown, GDP growth in 2024 will largely come from the construction sector - 14.5-13.7% (versus 15.7% in 2023), the service sector - 6.7-6.5% (versus 11.4% in 2023), the industrial sector - 4.7-4.5% (versus 1.7% in 2023) and the agricultural sector will accelerate in growth to 3.7% (from 0.2% in 2023).
Moreover, in comparison to the previous forecast, growth has improved in the construction sector (from 12.7%), the service sector (from 6.5-5.8%) and the agricultural sector (from 3.3-2.8%), while in the industrial sector, on the contrary, it has worsened (from 8.3-7.5%). The dynamics of exports and imports, according to the updated forecast of the Central Bank, after almost identical growth in 2023 by 28.7-28.3% will improve in 2024 imperceptibly to growth of 24.2-26.2% (for exports) and 24-23% (for imports), with a reversal in 2025 towards a double-digit decline in exports by 31.5-29.5% and imports by 28.4-30.4%. Compared to the previous forecast, a slowdown in growth is now expected for both exports and imports in 2024, and in 2025 the decline will be less severe. The ratio of the current account deficit to GDP, according to the new forecast of the Central Bank, will increase from 1.9% in 2023 to 3.9% (Case A) or 3.5% (Case B) in 2024, while a decrease to 1.3-0.6% was previously expected. Then, in 2025, this indicator will either continue to grow to 4% or decrease to 2.2%, depending on the development scenarios.
The ratio of remittances to GDP, according to the updated forecast of the Central Bank, will continue to decline - in 2024 to 2.6-2.7% (from 4% in 2023), and then in 2025 it will either remain at 2.6% or increase to 3.2%, thereby fixing the duration of the weakening of the economic effect in terms of the impact of transfers on the economy. The Central Bank's forecast for 2024 for budget revenues and expenditures has not changed: expenditures will grow more noticeably - from 2.5 trillion to 3.1 trillion AMD, than revenues - from 2.4 trillion to 2.6 trillion AMD, as a result of which the state budget deficit will increase from 191.6 billion to 482.9 billion AMD. As a result, in 2024, the ratio of the state budget deficit to GDP will increase from 2% to 4.7%, with a slight increase in the share of revenues in GDP from 24.8% to 25.9-25.7% and a more noticeable increase in the share of expenditures in GDP from 26.8% to 30.6-30.4%.
This report of the Central Bank of the Republic of Armenia also provides forecasts for economic development and inflation in the United States, the Eurozone and the Russian Federation, for oil and copper prices, and for the FAO index. Thus, the US economy is expected to grow by 2.8% in 2024 (compared to 2.6% in 2023) and inflation to decrease from 4% to 3%. The Eurozone economy will show growth of 0.7% in 2024 (compared to 0.4% growth in 2023), with inflation decreasing from 5.4% to 2.6%. The Russian economy will maintain growth in 2024, accelerating to 4.1% (from 3% in 2023), with inflation rising from 5.5% to 7.9%. In 2025, the US economy will slow to 2.5%, the Eurozone to 0.4%, and Russia to 1.7%, with inflation in both the US and the Eurozone continuing to decline to 2.7% and 2.4%, respectively, and in Russia only imperceptibly moving to 7.3%. The oil price will increase from $82.6 in 2023 to $84.6 per barrel in 2024 and further to $85.6 in 2025, which will also be observed in the copper price - from $8472.1 per ton in 2023 to $9396.7 per ton in 2024 and further to $10115.1 in 2025, and the FAO index, after decreasing in 2024 to 120.5 (from 124.1 in 2023) will increase to 127 in 2025. Moreover, the growth in oil and copper prices, as well as the growth of the FAO index, will continue in 2026-2027.
It is worth noting that the Central Bank's September forecast for GDP growth in 2024 (6.5-5.8%) now differs little from the June forecasts of the IMF and the World Bank, according to which Armenia's GDP growth in 2024 will slow down to 6% and 5.5%, respectively. Almost the same slowdown in Armenia's GDP growth in 2024 was also predicted by international rating agencies: S&P Global Ratings expected it to be up to 6.2%, and Fitch Ratings - up to 6%. For 2025, the Central Bank's current forecasts for GDP growth (5.9-3.7%) also came close to the expectations of the IMF and the World Bank (5.3% and 4.9%, respectively).
It should be noted that the new Forecasting and Policy Analysis System (FPAS) adopted by the Central Bank of the Republic of Armenia serves the purposes of information and analytical support for decision- making on monetary policy and consists of all the elements necessary for inflation targeting: data collection and processing, monitoring the current economic situation, development and improvement of models, the process of making decisions on monetary policy, as well as an open communication policy. The FPAS system includes the process of developing short-term and medium-term forecasts of macroeconomic indicators in order 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: the first is an analysis of current conditions and a short-term forecast; the second is a 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 making 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.
