Armenia’s economy is entering a phase of post-adjustment stability following the sharp boom triggered by regional disruptions in 2022, according to a research note by Renaissance Capital (RenCap), which also cautioned that the country’s fiscal stance warrants close monitoring ahead of the 2026 parliamentary elections.

The investment bank said that a major part of the growth surge that saw Armenia’s GDP nearly double in US dollar terms to $25bn by 2024 was now over, and the economy was expected to settle into a more sustainable growth pattern. Real GDP growth is forecast to normalise at 4.5-5.0% over 2025-2026, while inflation is likely to return to the Central Bank of Armenia’s 3% target.

The macro picture is “normalising at a post-adjustment potential,” RenCap said, adding that the economic rebalancing following shifts in trade, financial, and labour flows after the first quarter of 2022 had now largely run its course.

The Armenian dram, which appreciated significantly in recent years, is expected to continue outperforming regional peers in nominal terms. RenCap analysts said they do not view the currency as overvalued, citing support from counter-cyclical flows.

RenCap said Armenia’s economic fundamentals remain consistent with its BB- sovereign rating. Key indicators include a government debt-to-GDP ratio of 50%, external debt at 60% of GDP, and a current account deficit of 4% of GDP.

The country recently completed the fifth review of its three-year Stand-By Arrangement with the International Monetary Fund (IMF) and is likely to extend the programme in late 2025, according to the note.

However, fiscal policy stands out as a key area of concern. Armenia’s budget deficit is projected to widen to 5.5% of GDP in 2025 — up from 2% in 2023 and 3.5% in 2024—as the country gears up for elections in 2026.

“We believe Armenia’s fiscal stance requires the closest monitoring across the set of sustainability indicators,” RenCap said.

Armenia’s growing role as a regional trade and financial hub is one of its core strengths, according to RenCap. The country has demonstrated resilience to external shocks and domestic political turbulence.

Still, vulnerabilities remain. The country is exposed to geopolitical instability and potential spillovers from Russia, with internal buffers able to absorb only part of such shocks. Trade wars and regional uncertainty could also pose risks to Armenia’s economic outlook.

“[Armenia’s] main vulnerabilities include the direct effects of trade wars; potential contagion effects from Russia (with ‘’internal stabilisers’’ able to offset only part of potential spillovers); and the legacy of the region’s elevated geopolitical uncertainty and volatile domestic politics,” the note said.

RenCap views Armenian eurobonds as fairly valued in the current market environment.