Armenia, a country of 3.2mn, grew by a stagnant 0.2% y/y in 2016 and a more modest 6.4% y/y in the first five months of the year. The higher-than-anticipated growth at the beginning of the year has fuelled hopes that the Armenian economy has recovered from last year’s slowdown. The growth in May was prompted by a 20% y/y increase in industrial output, 15% growth in trade and 14.3% growth in services.
Poised to grow by 3% y/y in 2017, the Armenian government has plans for large-scale reforms in the second half of the year. The plan is aimed at boosting economic growth to an average of 5% in 2017-2022. According to Prime Minister Karen Karapetyan, the plan includes "concrete actions" aimed at achieving targets related to unemployment, the minimum wage, economic growth, exports and tax to GDP ratio.
However, the country's reliance on remittances, which account for some 10% of GDP, will continue to represent a risk that makes the Armenian economy vulnerable to external shocks ahead, according to International Monetary Fund (IMF).
As a net energy importer, Armenia saw its foreign trade deficit widen to $678mn in the first five months of year, as import growth continued to outpace export growth. The country’s growing public debt to GDP, which stands at 50%, is a source of concern for multilateral lenders like the World Bank who have warned the government to contain it in order to avoid further pressure on the state budget.
Meanwhile, consumer prices have been deflating since 2016. They increased marginally by 1.6% y/y in May and 0.4% y/y in January-May, and remain within the government's target range of 2.5% to 5.5%.
On the political front, the ruling Republican Party (HHK) won Armenia’s April 2 parliamentary election with almost half of the votes, thus enshrining its grip on power that began in the late 1990s. A renewed round of peace negotiations between Armenia and its Caucasus neighbour Azerbaijan over the disputed Nagorno-Karabakh region led to the escalation in border violence amidst fears that the decade-long conflict between the two countries over the region is close to turning into a war.
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