The Central Bank of Armenia has revised its GDP growth forecast for  2024 from the previous range of 6.8- 6.1% to a new range of 6.5-5.8%

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.