EBRD forecasts Armenia’s GDP to shrink by 3.5 per cent in 2020 before rebounding to 5.5% in 2021

The European Bank for Reconstruction and Development (EBRD) has cut its 2020 economic growth forecast for Armenia, but expects a recovery next year.

Armenia’s gross domestic product (GDP) growth is expected to fall by 3.5% in 2020, before rebounding to around 5.5% in 2021, the EBRD said in a regional economic prospects report.

Economic growth in Armenia accelerated to 7.6 per cent in 2019, driven by the significant increase in the consumption of households and supported by stronger export growth.

The increase in consumption was led by household credit, up by 30 per cent in 2019, and by a 10 per cent increase in money transfers from abroad. On the production side, growth was led by the manufacturing and financial sectors, closely followed by domestic trade.

The resumption of operations at one of the mines helped support expansion of exports. Despite strong household demand, inflation turned negative
in the first quarter of 2020.

With a relatively stable exchange rate combined with deflationary pressures, and in an effort to support domestic demand, the Central Bank
of Armenia lowered the refinancing rate two consecutive times to 5.0 per cent in April 2020, the lowest rate since 2010.

“The global uncertainty and decreasing demand resulting from the coronavirus crisis, combined with volatility in commodity prices, will affect the economy directly via a decrease in exports, which are dominated by copper and other mining products, and indirectly through economic links with Russia, including a likely downturn in remittances,” EBRD says.

“Prolonged measures of social containment and low mobility would hurt Armenia’s tourism sector, which is largely dependent on visits from
Armenians abroad. We project the Armenian economy to shrink by 3.5 per cent in 2020, with a rebound of 5.5 per cent in 2021,” the report reads.

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