ADB revises upwards growth forecast for Armenia to 5.2%, from 1.8%

23.09.2021 17:14
ADB revises upwards growth forecast for Armenia to 5.2%, from 1.8%

YEREVAN, September 23, /ARKA/. The Asian Development Bank has revised upwards the growth forecast for Armenia in fiscal year 2021 to 5.2%, from 1.8% predicted earlier, according to its latest Asian Development Outlook 2021 report, released on September 22.
According to the report, Armenia’s economy reversed 5.5% contraction in the first half of 2020 to grow by 4.9% a year later. This marked recovery from a low base but also from multiple economic shocks in the second half of 2020.
On the supply side, all sectors contributed to growth. Agriculture expanded by a strong 7.1% on higher crop production. Services grew by 5.3%, with increases in trade, transportation, food, and administrative and real estate services that outstripped declines in recreation, accommodation, and education services. Construction grew by 5.5%, supported by public infrastructure and private construction. Industry grew by 1.3% as gains in mining and quarrying, electricity generation, and water and waste.
On the demand side, private consumption expanded by 5.4% on higher remittances, and public consumption grew by 3.2% with higher spending on social services. Investment, measured by gross fixed capital formation, surged by 9.5% on higher government and private capital spending. With the economy recovering faster than anticipated, this Update raises growth projections for 2021 and 2022.
Inflation accelerated in the first 7 months of 2021, reflecting recovery in domestic demand, currency depreciation from November 2020 to March 2021, and rebounding global commodity prices.
Average annual inflation in the period jumped from 0.7% a year earlier to 6.1%, propelled by increases of 8.5% for food and 8.2% for other goods, with services up 1.9%. Inflation hit 8.2% year on year in July, well above the Central Bank of Armenia target of 2.5%–5.5%.
To contain inflation, the central bank gradually raised its benchmark rate by 175 basis points to 7.00% in four steps from December 2020 to August 2021. With inflation in the first half exceeding expectations, this Update raises the inflation forecast substantially for 2021 and less so for 2022.
The current account recorded surpluses in services, current transfers, and remittances, as well as a smaller deficit in goods, slashing the overall deficit from the equivalent of 8.9% of GDP in the first quarter of 2020 to 3.4% a year later. The merchandise trade deficit narrowed from 12.4% of GDP to 8.6% as a 13.3% drop in imports outpaced a 1.5% decline in exports. With imports expected to rise more than exports because of increased demand for capital goods to supply investments, the merchandise trade deficit is projected to widen during the rest of 2021.
This development should be partly offset by rising remittances from the Russian Federation, higher current transfers, and increased gains from tourism, transportation, and financial services. With increases in both external and domestic demand, this Update raises projections for current account deficits in both 2021 and 2022. -0-

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