Expansion moderated further in 2014 to 3.4%, and the current account weakened because of deteriorating conditions in the Russian Federation, Armenia’s main trading partner. The outlook is for slower growth, higher inflation, and a still weaker external position. The challenge ahead is to boost domestic demand to sustain growth.
|Selected Economic Indicators (%) - Armenia||2015||2016|
|Current Account Balance (share of GDP)||-9.2||-8.3|
Source: ADB estimates.
Growth in Armenia slowed to 3.4% in 2014 from 3.5% in 2013.
On the supply side, growth was led by agriculture and services. Despite gains in food, beverages, and tobacco, industry (excluding construction) contracted by 0.1% as falling prices for nonferrous metals in world markets helped cut output in mining and metallurgy. Construction fell by 3.3% as the government and households curtailed capital outlays. Agriculture expanded by 7.8% in 2014 despite an unseasonably cold spring that destroyed major fruit crops. Much of the growth came from expansion in the area cultivated and higher livestock production. Services rose by 5.2%, driven by gains in trade, food service, finance, insurance, recreation, and health care.
On the demand side, a large statistical discrepancy clouds the analysis, but private consumption appears to have continued as the main source of growth, though expansion slowed to an estimated 0.5% in 2014 from 0.9% in 2013 as remittances from the Russian Federation declined. Higher government spending contributed to a 6.8% rise in public consumption. Investment, as measured by gross fixed capital formation, fell by an estimated 5.0%, reflecting deficiencies in the investment environment and structural weaknesses.
Regional geopolitical developments leave the economic outlook highly uncertain. The slowdown in the Russian Federation, caused in particular by sanctions and lower oil prices, will likely further depress the Armenian economy. Growth is thus expected to slow again, to 1.6% in 2015, before recovering to 2.3% in 2016.
Excerpted from the Asian Development Outlook 2015.