Central Bank: Armenia’s long-term growth potential risked

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YEREVAN, February 17. /ARKA/. Due to the coronavirus pandemic, the martial law the Armenian government declared after Azerbaijani offensive against Nagorno-Karabakh, as well as the increased uncertainties about economic development prospects lower-than-expected economic activity was recorded in Armenia in the 4th quarter of 2020 against the backdrop of weak domestic demand, Armenia’s Central Bank’s Board said on Tuesday.

According to the regulator, the economic activity in 2020 decreased by 7.5% from the previous year due to a significant decline in the service and construction sectors. The weak domestic demand resulted largely from a significant decrease in private consumption, which, in turn, was caused by the cautious behavior of the population amid the existing uncertainty, as well as by a slowdown in lending, especially in recent months.

According to the Central Bank Board, these trends will continue in early 2021 and will have a negative impact on domestic demand. In the fourth quarter of 2020, the government continued to pursue a stimulating fiscal policy and remittances from abroad were higher than expected, which somewhat mitigated the negative impact of the above factors.

The Central bank Board said also that the current situation poses significant risks in terms of opportunities for long-term potential economic growth, therefore, in this context, an appropriate expenditure strategy of fiscal policy, will, along with other structural reforms undertaken by the government, aim to restore economic potential.

The Central Bank also said that high inflation in the 4th quarter of 2020 was mainly due to supply factors, in particular, due to the rise in prices for a number of imported food products.

According to the National Statistical Committee, the economic activity in Armenia in January-December 2020 dropped by 7.5% compared to the same period in 2019.

The government’s growth projection for 2021 is 3.2%. The projected inflation is 4% (±1.5%).

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