YEREVAN, November 4, /ARKA/. After the prolonged decline by 3.3 per cent year-on-year in the first quarter of 2021, Armenia’s economy posted strong growth of 13.2 per cent year-on year in the second quarter, driven by rebounding consumption and increased investments from the expenditure side and services from the production side, the European Bank for Reconstruction and Development (EBRD) said in its latest Regional Economic Prospects report, published today.
It says though still solid, growth has started to moderate in the third quarter. Remittances have been growing strongly, with the inflow of money transfers increasing by 32.5 per cent year-on-year in the first half of 2021, largely driven by strong growth of transfers from the United States (84.5 per cent increase in the first half of 2021, compared with a decrease of 17.4 per cent in the corresponding period of the previous year).
Inflation accelerated from around 1 per cent in the last months of 2020 to 8.9 per cent in September 2021 as a consequence of higher international food and energy prices and the pass-through effect of last year’s dram depreciation. This prompted the Central Bank of Armenia to raise the refinancing rate six consecutive times by a cumulative 3 percentage points to 7.25 per cent in September 2021.
The Armenian economy is expected to grow by 5.0 per cent in 2021, followed by 5.3 per cent growth in 2022. Key risks remain related to the low vaccine uptake and the future path of the Covid-19 pandemic in general, as well as ongoing regional and geopolitical tension.
Following a faster-than-expected recovery in H1, World bank earlier revised the projected Armenia’s GDP growth rate for 2021 to 6.1 percent, up from 3.4 percent in April 2021. IMF’s forecast is 6.5% for 2021 and 4.5% for 2022.
The European Bank for Reconstruction and Development said high commodity and energy prices, tight labor markets, supply chain disruption and currency depreciations in some EBRD economies have begun to push up inflation even before the latest spike in Covid-19 infection cases.
On average, inflation in the EBRD regions exceeded its end of 2019 levels by 3 percentage points in September 2021. In response, a number of central banks in the EBRD regions have raised policy interest rates.
In 2022, as economies recover, growth is expected to moderate to 3.8 per cent in the EBRD regions. This is 0.1 percentage point lower than expected in June 2021. However, forecasts are subject to high uncertainty, reflecting risks associated with the future path of Covid-19, possible worsening of external conditions and weaker growth in trading partners.
More widespread inflationary concerns may bring forward policy tightening in advanced economies, making debt burdens more expensive to service, the report warns. Travel restrictions and lingering fears of contagion continue to weigh on the outlook for the tourism sector. While bankruptcies have so far remained contained, further vulnerabilities may surface once policy support is reduced. -0-