Armenia to Have Positive Growth, Despite Pandemic, Report Suggests

Armenia’s economic growth will be positive despite the expected decline in the global economy due to the COVID-19 pandemic, says a new report published by Inecobank, a commercial bank in Armenia.

The report, entitled “COVID-19: Impact and Response in Armenia,” projects possible scenarios and presents suggestions on how to tackle and mitigate economic challenges. It also elaborates on the measures taken by the bank in face of the new realities caused by the pandemic.

Annual global GDP growth is projected to drop to 2.4% in 2020, from an already weak 2.9% in 2019, with growth possibly going negative in the 1st quarter of 2020.

Inecobank’s analysts mention that the continued spread of coronavirus worldwide significantly increased uncertainties in the world economies and financial markets, which is reflected in the continued decline of developed countries’ stock indices, commodity prices, as well as the devaluation of national currencies in developing countries. These factors will consequently have an impact on the Armenian economy, primarily on the services sector and especially on sub-sectors related to tourism and entertainment, as well as export based industries.

According to the baseline scenario of the report, China and East Asian economies will continue their current recovery and control over the pandemic later in the 1st quarter or early in the 2nd quarter of 2020; oil prices will remain at around current levels over the next few months and by the end of the year it will reach 45-50 USD (Brent). 

The price of copper, Armenia’s main export product, will remain at around current levels (4700-4800 USD), but will grow to 6000-6200 USD by the year-end. 

The baseline scenario also suggests that the inflows in the tourism sector in 2020 will go down by 40%, while the decline will reach its peak in the 2nd quarter, followed by a gradual recovery. Also, personal money remittances will go down by 30% mainly due to the deterioration of the Russian economy and the depreciation of the Russian ruble. 

The drop of oil and copper prices will reduce Armenia’s net inflows, despite the savings from cheaper oil imports due to the deterioration of the Russian economy and a fall in global demand.

The net loss in tourism, goods exports, remittances, FDIs and imports will amount to 380-450 million USD, while inflation will stand at around 1.5-2.0% by the end of 2020, suggests the baseline scenario of the report.

The report says that the USD 300 mln fiscal stimulus will help Armenia to have GDP growth at around 1.5-2.0% in 2020, despite the expected sharp drop in the 2nd quarter.

The report also presents a stress scenario where the COVID-19 pandemic continues in China and other economies and recovery is not seen till the 3rd quarter.

According to this scenario, the number of infected patients rapidly increases in Armenia reaching the peak through the end of June; the global economy falls into recession, etc.

Inecobank analysts suggest that under this scenario, the economy of Armenia will go into recession, and will start to grow only in the beginning of 2021.

The full report of Inecobank is available here.