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World Bank forecasts 1.7 GDP growth in Armenia in 2020

Armenia’s economy performed strongly in 2019. However, the COVID-19 pandemic and declining commodity prices lowered the 2020 GDP growth projection sharply (to 1.7 percent), provided a recovery starts in mid-summer, the World Banks says in a new report.

“Recent developments Armenia’s economy expanded strongly in 2019, with real GDP growth reaching 7.6 percent, the third consecutive year of robust expansion. Growth was driven by private consumption, with investment making a modest contribution. Exports grew by 10 percent year on year but were offset by an acceleration in import spending to meet growing domestic demand,” the World Bank said.

The Bank says the 2020 outlook has been strongly affected by the COVID-19 pandemic and the slump in commodity prices. Under the baseline scenario, which envisaging the start of a gradual recovery in the third quarter of 2020, GDP growth in 2020 is expected to moderate to 1.7 percent, one-quarter of the average growth rate recorded over the past three years due to lower exports private domestic demand.

The external deficit will remain wide as external demand scales back and remittance inflows drop sharply due a weaker Russian economy and a depreciated ruble. This could put pressure on the exchange rate. In the first half of March 2020, the dram lost more than 2 percent of its value against the U.S. dollar. Central bank reserves and a precautionary arrangement with the IMF provide some buffers, but policies may need adjustment in case of stronger depreciation pressures.

 The budget will provide some fiscal stimulus, with the fiscal deficit forecast to widen to about 4.7 percent of GDP, including a 2.2 percent of GDP fiscal stimulus package as a response to the COVID-19 pandemic. With government debt at near 50 percent of GDP, the escape clause of the fiscal rule may need to be invoked. GDP growth is forecast to recover over the medium term, to around 4.5 percent in 2021 –22, supported by stabilizing external conditions and catch-up of delayed activities. Given historical growth elasticity, the poverty rate is expected to return to a declining path.

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