Eurasian Development Bank cuts Armenian growth forecasts

By bne IntelliNews October 19, 2016

Armenia's economy is expected to expand by 2% in 2016 before accelerating to 2.3% next year,  the Eurasian Development Bank (EDB) said in the latest quarterly outlook.

Both estimates represent a deterioration from the bank's previous forecast published in July when GDP growth was projected at 2.6% for 2016 and at 4.2% for next year. Armenia was the most buoyant economy in Central Asia and the Caucasus in the first half of 2016 thanks to a 2.8% y/y GDP growth, EDB said. Growth in the first quarter was particularly strong at 4.5% y/y but it eased sharply to 1.5% y/y in the second quarter and has been falling since.

The slowdown has been prompted by a fall in industrial production, the development bank explains. Meanwhile, the 9.6% y/y increase in exports in the first half-year, coupled with a 5% reduction in imports, has helped boost economic growth.

Thanks largely to the foreign trade dynamic, the country's current account deficit sank to a record low of $166.7mn in the first half-year, the EDB reports. Furthermore, the dram's stability - the Armenian currency is slightly overvalued in relation to the Russian ruble - enabled the central bank to increase its reserves by $171.5mn since May, the lender writes.

Meanwhile, falling remittances from Russia, which declined by 15.6% y/y, were partially offset by an expansionary fiscal policy. Spending on public projects will, however, push the budget deficit to 4.1% of GDP by year-end, and government debt to 51.9% of GDP, the report concludes.

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