Thursday, September 26 2024 15:53
Naira Badalian

In 2024 and in the medium term, economic growth to be driven  primarily by growth of services sector - Draft budget of the Republic  of Armenia for 2025

In 2024 and in the medium term, economic growth to be driven  primarily by growth of services sector - Draft budget of the Republic  of Armenia for 2025

ArmInfo.  Armenia's nominal GDP in 2025 is projected to reach AMD 11 trillion 50 billion  (about $28.5 billion), compared to the expected AMD 10 trillion 110 billion  by the end of this year. The real GDP growth is forecasted to be  5.6%, falling short of the minimum 7% set by the Cabinet's program of  activities for 2021-2026. This is stated in the draft state budget  for next year, which was approved by the government on September  26th.

As noted by the Ministry of Finance, economic growth from  2021 to  2023 was mainly driven by the growth of services, contributing an  average  of 6.7 percentage points Construction and industry also  played a role in economic growth (their contribution averaged 0.8 and  0.5 percentage points, respectively), while agriculture had a  slightly negative impact on economic growth. On the demand side,  growth was supported by both domestic factors (mainly consumption and  private investment) and export growth. In 2024, the pace of economic  growth continued, driven by a sharp increase in the production of  jewelry and raw metals, as well as the consumption and economic  activity of our compatriots forcibly displaced from Nagorno-Karabakh  to the Republic of Armenia. As a result, economic growth was recorded  at 6.5% in the first half of the year. 

All sectors of the economy experienced growth, with the main driver  being services sector (contribution:  4.7 percentage points). The  6.7% increase in services was primarily attributed to the growth in  trade (22.1%), financial and insurance (15.3%) and real estate  (12.8%) sub-sectors.  As a result of the current economic  development, the continued increase in the role of public capital  expenditure, as well as the possible impact of the underground  operation of the Sotk mine and structural reforms, economic growth is  expected to be around 5.8% in 2024, 5.6% in 2025, and an average  growth of 5.5% in 2026-2027. 

In 2024 and in the medium term, economic growth will be driven mainly  by the services sector.  Additionally, growth in industry and  construction will support economic expansion. Agriculture will also  have a positive impact on economic growth. Overall demand is expected  to increase mainly due to an increase in domestic consumer and  investment demand. In 2024 and 2025, as well as in 2026-2027, the GDP  deflator will increase due to the dynamics of the consumer price  index and international commodity prices. The deflator in 2025 is  projected to reach 3.5%, compared to the expected 1.1%  by the end of  this year. The average inflation will be 3.6%, significantly higher  than the 0.4% seen in the current year. Given these conditions, the  nominal GDP in 2024 will amount to AMD 10 billion 110.2 billion,  which is AMD 125.2 billion less than projected by the Medium-Term  Expenditure Program for 2025-2027, and AMD 405.9 billion  less than  the budget figure for 2024. 

In 2025, the nominal GDP is projected to be AMD 11050.1 billion,  which is AMD 147.1 billion  less than the PSSR's projection for  2025-2027. The draft budget predicts that in the medium term, the  nominal GDP will grow by an average of 9.6%, reaching AMD 13.303  billion in 2027.  State treasury expenditures for 2025 are planned at  the level of AMD 3 trillion 482.4 billion ($7.8 billion), of which  AMD 2 trillion 749.2 billion will be current expenditures, and AMD  733.2 billion  ($1.88 billion) will be capital expenditures (6.6% of  GDP), which is higher than the planned figure for 2024, AMD 695  billion  ($1.79 billion), and the actual one of 639 billion ($1.65  billion). The ratio of taxes to GDP, is planned to increase by 0.7%  compared to the expected figure for 2024, which is 0.1% higher than  the approved budget,  bringing it to the target indicator of 25%. The  deficit is expected to be AMD 609.4 billion, against AMD 482.9  billion  or 4.6% of GDP in the budget approved for this year.  The  government debt/GDP ratio in 2025 is projected to be 53.5%. 

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