2025 budget message: Higher GDP growth potential in Armenia 

ArmInfo. Armenia's nominal GDP in 2024 will be 10 trillion 110.2 billion drams, or 405.9 billion  drams less than the program indicator, and 125.2 billion drams lower than the indicator projected by the Medium-Term Expenditure Framework for 2025-2027 (MTEF). In 2025, the lag behind the MTEF will continue.

Thus, according to the message to the draft state budget for 2025,  next year the nominal GDP will be 11 trillion 050.1 billion drams,  which is 147.1 billion drams less than the indicator projected by the  MTEF for 2025-2027.

Aggregate supply

In particular, in 2024, economic growth will be driven by the growth  of the service sector - by 6.9%.  Construction, industry and  agriculture will also grow by 13.2%, 3.1% and 3.3%, respectively.

Already in the medium term, due to the growth of domestic and foreign  consumption, public and private investment in the economy, as well as  the state policy to stimulate exports and investments, the country's  financial authorities expect an increase in the services sector by an  average of 5.7% (the growth of services will continue to be due to  the growth of the IT, tourism and financial services sectors). Over  the same period, industry will grow by 5.5% (due to the mining  industry, in particular the exploitation of the Amulsar deposit,  Sotka and the growth of the manufacturing industry). Construction  will increase by 6.7%, due to the growth of state capital  expenditures, mainly through infrastructure investment projects, as  well as an increase in the housing stock. In the medium term, the  authorities also expect a 3% growth in the agricultural sector due to  programs implemented with state support.

Aggregate demand

In 2024, final consumption in real terms will grow by 5.6%, and  investment - by 11.5%.

This year, exports and imports will grow by 16.9% and 20.6%, which  will be due to the growth of economic activity and domestic demand,  as well as an increase in tourist flow and re-export. However, the  financial authorities predict a decrease in the impact of exogenous  factors caused by the Russian-Ukrainian conflict, in particular, due  to a decrease in re-export volumes in 2025, exports will decrease by  36.6%, and imports - by 33.7%.

Targeting economic growth

The Armenian government emphasizes that despite the fact that the  authorities aimed to ensure annual GDP growth of 7% on average, in  fact, for the period from 2021-2026, the average GDP growth was 7.3%  (according to the program of the executive body for the specified 5  years, annual economic growth should have been at least 7%, and under  favorable external conditions - all 9% - ed.). Nevertheless, the  Cabinet of Ministers of the Republic of Armenia, represented by the  Ministry of Finance, admits that the achievement of the   indicators was influenced by the international situation around  Ukraine, the relocation of IT specialists to the Republic of Armenia,  mainly Russian, and the sanctions policy of the West towards Moscow.

At the same time, the country's financial authorities assure that the  GDP growth potential has grown from the early 4-4.5% to 5-5.5%. In  2024, the financial authorities, despite the 7% budget approved for  2024, expect growth of 5.8%, and in 2025, growth is forecast at 5.6%.

Labor market

In 2021-2023, the unemployment rate decreased from 15.5% to 12.6%,  and the number of employees increased by an average of 5%. However,  according to the results of the first quarter of 2024, unemployment  was 15.5%, increasing by 1.8 percentage points compared to the same  period in 2023, and the employment rate decreased by 2.2 percentage  points to 8.7%. In particular, in January-July of this year, the  number of unemployed reached 44,063 people, an annual increase of  4.5%, over the same period, the number of employees increased by  5.5%, and the average monthly nominal salary increased by 6.7% - to  280 thousand 066 drams. The growth of real wages amounted to  approximately 7% (with a 0.3% decrease in the consumer price index),  nominal wages in the public sector increased by 10.5% - to 216  thousand 251 drams, and in the private sector amounted to 305  thousand 674 drams (an increase of 5.4%).

Inflation and monetary policy

In 2023, 12-month inflation was negative 0.6%, and average inflation  - 2%. In 2024, both average and 12- month inflation will be below the  target, but in the medium term, as the financial authorities of the  Republic of Armenia believe, the situation will stabilize around the  target of 4%.