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World Bank forecasts 3.4% economic growth for Armenia in 2021

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EDITOR'S CHOICE

The World Bank forecasts 3.4 economic growth for Armenia in 2021, according to the Bank’s Europe and Central Asia Economic Update.

“In 2020, Armenia experienced one of the region’s sharpest GDP contractions—7.6 percent—as a severe COVID-19 outbreak and a military conflict with Azerbaijan late in the year impacted performance. Poverty is estimated to have increased by 7 percentage points in 2020. The economic recovery will be gradual”, the report says.

“Before the coronavirus pandemic, Armenia was making gradual improvements to its business environment and establishing a track record of prudent economic management, underpinned by a robust fiscal rule, an inflation-targeting monetary policy framework, and improving financial sector oversight. The authorities launched an ambitious reform program aimed at strengthening governance in 2018. Economic growth was strong, averaging 6.4 percent in 2018 and 2019”, stated in the report. “Despite Armenia’s reform progress, structural challenges have prevented the country from reaching its full potential”, the report notes, adding that these include governance gaps such as incomplete judicial reform, etc. “A tense geopolitical situation exacerbates these challenges”.

“Armenia’s progress was derailed in 2020 by twin shocks: the war in Nagorno Karabakh and the coronavirus pandemic. Real GDP contracted by 7.6 percent in 2020. GDP growth is projected to recover partially in 2021 (to 3.4 percent) and more strongly in 2022 (4.3 percent). The recovery will be slow; the economy is unlikely to return to pre-COVID output levels until 2023. The baseline scenario assumes that the authorities will not enact additional lockdowns and restrictions in 2021. Private consumption and the services sector are expected to recover gradually. Private investment will likely remain subdued, reflecting weak investor confidence. High post-conflict spending and ambitious public investment plans— although tempered by execution challenges—will keep the fiscal deficit elevated and drive the debt-to-GDP ratio above 70 percent in the medium term.

Average inflation is forecast to remain close to the CBA’s 4-percent target in 2021 but could surge higher if global food and fuel prices continue to rise unexpectedly.

FDI inflows are expected to remain subdued, but public borrowing will keep reserves at a comfortable level over the medium term”, the report said.

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