October 2019. Republic of Armenia: trends and forecasts

06 December 2019

Armenia’s economic growth accelerated in the first half of 2019 as household consumer activity and the mining industries recovered. The EDB projects Armenia’s GDP to grow by 6.5% over 2019, more than in 2018 (5.2%), driven among other reasons by the preceding year’s low base in the mining industry. In 2020 and 2021, economic growth will trend towards its potential rate that we estimate at about 5%. It may increase as the government implements its business climate improvement initiatives.

For most of the first half of 2019, inflation kept below the CBRA target range (4+/-1.5%). Food price trends were a source of volatility. Core inflation sanitized from the influence of the unstable prices in the food market decreased as the dram strengthened against the main trade partner countries’ currencies.

The EDB predicts inflation to stay weak in the second half of 2019, with 1% consumer price growth over the year. In the medium term, inflation growth will be driven by domestic demand increasing as both wages and lending grow. By the end of 2021, inflation will approach the middle of the CBRA target range.

The Central Bank of the Republic of Armenia reduced its refinancing rate by 0.25 pp, to 5.75% p.a., in January 2019, as the price growth rate was low. According to the EDB’s base case projection, the Central Bank will begin raising its interest rate in 2021 as inflation gradually accelerates.

In the first half of 2019 the State budget posted a surplus for the first time since 2014, at AMD 121.9 billion (4.5% of GDP). Public finance improved mainly on account of a better tax collection rate. The switch to a budget surplus had a beneficial effect on Armenia’s public debt data.

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