YEREVAN, September 25. / ARKA /. The Asian Development Bank has reduced the growth forecast for Armenia in 2014 and 2015, as weakness in industry and construction caused economic activity to slow in the first half of 2014.

Growth is projected to recover in 2015, reflecting higher production, increased domestic demand, and an expected revival in the Russian Federation, according to the bank’s latest Asian Development Outlook report.

The report says growth slowed to 2.6% in the first half of 2014 from 3.5% in the same period of 2013. A 0.8% drop in industry and growth at only 0.7% in construction and 1.9% in agriculture contributed to the slowdown; services grew by 3.7%.

The report says also that acceleration over the whole of 2014 is expected to come on the supply side mainly from faster growth in services, and on the demand side mainly from a recovery in private consumption supported by public sector wage hikes. Considering current trends and the effects of the slowdown in the Russian Federation, growth projections are trimmed by 0.8 percentage points for 2014 and half as much for 2015.

Inflation eased in the first half of 2014 to an annual rate of 4.0%, down from an average of 5.8% in the full year 2013, as the remaining effects of electricity and gas price hikes in July 2013 were fully absorbed.

The 12-month inflation rate declined further to 1.8% in June from 5.6% in December 2013, well below the central bank’s target band of 2.5%–5.5%.

Nevertheless, inflation forecasts are retained for both 2014 and 2015, as expansionary fiscal policy, the easing of monetary conditions and a 10% electricity price increase in August 2014 are expected to exacerbate inflationary pressures during the second half of 2014.

The current account deficit narrowed markedly to 8.0% of GDP in 2013 from 11.1% in 2012, reflecting improvements in all components.

However, slower economic growth in the Russian Federation—Armenia’s largest trading partner and main source of remittances—has weakened the outlook for the external sector. The forecast deficits in the current account, unchanged for the next 2 years, show no further improvement.

In late August the Central Bank of Armenia also revised its GDP growth outlook for 2014 lowering it from the previously predicted 4.1-4.8% to 3.6-4.2%,

The Eurasian Development Bank has projected a 3% growth for Armenia. The IMF has also revised downwards its projection to 4.3 % and the World Bank’s forecast is 5%.

Also following a stronger than expected decline in net exports and slowing remittances in H1 2014, Moody's has revised Armenia's growth forecast down to 2.1% in 2014 and 2.3% in 2015 from 3.2% and 3.6%, respectively.

The revised figures are based on Moody's forecast for the Russian economy to contract by 1.0% in 2014, followed by stagnation in 2015. -0-