EDB forecasts stabilization of Armenia`s economy 

ArmInfo.  According to forecasts by the Eurasian Development Bank (EDB), the Armenian economy will stabilize on a 5.5% growth trajectory with domestic demand maintaining its role as the main driver of development. This is stated in the Bank's  latest Macroeconomic Review. The analytical material presents an  analysis of the economic development of the Bank's member states at  the beginning of 2025 and a forecast of the main macroeconomic  indicators until the end of 2025 and for 2026-2027.

It is noted that inflation in Armenia is projected to be close to the  target over the entire forecast horizon and will amount to 3.1% by  the end of 2025 amid the recovery of world food prices and an  increase in domestic demand. This will be facilitated by the recovery  in world food prices, the effect of the reduction in the refinancing  rate over the past year and a half, a stimulating budget policy and a  moderate weakening of the dram by the end of the year. In 2026-2027.  inflation will slow down somewhat after recovery in 2025 and will be  close to the lower limit of the target range of the Central Bank of  the Republic of Armenia, averaging 2.8% per annum. Such dynamics will  be due to stabilization of growth in global food prices, the return  of the economy to long-term growth rates and a slight weakening of  the dram exchange rate.

With inflation in the target range of the Central Bank of the  Republic of Armenia and balanced growth of domestic demand, the  refinancing rate will remain at the current level (6.75%) until the  end of 2025. At the same time, according to our estimates, monetary  policy will have a slightly positive effect on demand this year and a  neutral effect in the medium term. In 2026-2027, the rate will be  close to 6.5%, which will correspond to inflation staying stable in  the target range of the Central Bank of the Republic of Armenia, and  GDP growth rates at a long-term sustainable level, which is estimated  at about 5% per annum.

The stimulating effect of fiscal policy, high rates of household  lending and recovery of remittances will support demand in 2025. In  2026 and 2027, economic growth will be close to long-term rates -  5.3% and 5.0%, respectively

The average dram exchange rate this year is expected to be at the  level of the previous year - 392 drams per dollar. The exchange rate  will be supported by an increase in revenues from the export of  tourism services and the inflow of remittances (In January - April  2025, the net inflow of non-commercial cross-border transfers  increased by 24% y/y after a decrease of 35% and 44%, respectively,  in 2023 and 2024 - Bank).

The dram will be stable throughout almost the entire 2025. The  recovery of the dynamics of the net inflow of remittances after a  decrease in 2024 and a high level of international reserves will  support the national currency. In 2026-2027, the average annual rate  will be about 402 drams per dollar. The gradual moderate weakening of  the Armenian dram compared to the current year will occur against the  backdrop of lower rates on the money market and a slowdown in  economic growth. In addition, the dynamics of the dram exchange rate  will be affected by the growth of imports in the context of stable  domestic consumer and investment demand.

Speaking about the stimulating budget policy of the Armenian  government in 2025, the Bank's analysts note its significant impact  on demand in 2025, given the plans to achieve a budget deficit of  5.5% of GDP after 3.7% in 2024. The expansion of the deficit will be  associated with an increase in the level of expenditures by 1.8  percentage points to 30.8% of GDP, while revenues in 2025 will be  stable - 25.3% of GDP. The government plans to increase the level of  capital expenditures to 6.3% of GDP in 2025 and stabilize them at  5.9% of GDP in 2026-2027. Successful implementation of these plans  will contribute to an increase in overall productivity, which will  have a positive impact on the rate of potential economic growth in  the medium term. In 2026-2027. EDB analysts forecast a neutral impact  of budget policy on demand, taking into account a gradual reduction  in expenditure to 29% of GDP and an increase in tax revenues to 25%  of GDP by 2027

At the same time, the Bank's analysts consider the probability of a  sharp outflow of capital and labor and associated economic losses to  be an unlikely risk for the Armenian economy. The outflow process  will most likely be extended over time, and its impact will be  gradual, so the economy will have time to adapt to the new conditions  and compensate for losses in other ways. The deterioration of the  geopolitical situation in the region increases the uncertainty of  forecasts regarding the main macroeconomic indicators. If unfavorable  scenarios are realized, pro-inflationary risks and risks of weakening  external demand will increase, and the country risk premium will  increase.

In general, EDB analysts note different dynamics of growth rates of  the economies of the participating countries. High growth rates are  maintained by the countries of Central Asia and Armenia, with a  slight slowdown in the dynamics in Russia and Belarus. According to  the results of the first half of 2025, the aggregate GDP of the  Bank's member countries grew by 2.1%. <At the same time, the EDB  member countries continue to actively create new sources of growth.  Investment growth rates in most countries (Armenia, Belarus,  Kazakhstan, Kyrgyzstan and Tajikistan) remain double-digit.  Investment growth is formed both by internal sources and by  attracting external financing, including FDI. This indicates the high  adaptability of the countries of the region to the new realities of  the global economy>, - noted Evgeny Vinokurov, Chief Economist of the  Eurasian Development Bank.