Armenia: economic growth to speed up in 2019 with the revival of investment activity

Armenia’s medium-term economic growth will approach 5% per year, The Macroeconomic Review prepared by the Directorate for Research at the Eurasian Development Bank (EDB) suggests.

The paper points out that Armenia’s economic growth in 2018 was 5.2%, compared to 7.5% the year earlier. The main reason for the slowdown was lower consumption by households and the public sector compared to 2017. The authors of the review expect that Armenia’s GDP growth will slightly accelerate in 2019. This will be associated with higher investment activity, as the mining sector will gradually adapt to the new requirements, the restored agricultural production, as well as the government’s policy to support investment and exports and improve social conditions.

In 2018, while economic activity was growing, the government pursued a contractionary fiscal policy in order to maintain debt and fiscal stability. The priorities of the fiscal policy are expected to remain the same in the medium term.

The review also notes that inflation in Armenia over 2018 remained below the 4% target set by the country’s Central Bank and, in December, was 1.8% year-on-year. The main determinant of inflation in 2018 was volatile food commodity prices in the context of reduced crop yields.

In 2019, inflation is expected to stand at 2.8%, influenced by growing domestic demand against increased wages and lending. By the end of 2021, the indicator is forecast to reach the Central Bank’s 4% target.

With the gradual acceleration in inflation processes and inflation approaching the target, the Central Bank is expected to launch a series of rate increases, which, according to the researchers, will have a neutral effect on economic growth and inflation.