Eurasian Development Bank raises Armenia’s 2021 growth forecast

YEREVAN, July 9. /ARKA/.  The Eurasian Development Bank (EDB) has updated its macroeconomic forecast for 2021 and the medium term, saying the 2021 projection for aggregate GDP growth of EDB member states (Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, Russia, and Tajikistan) has been raised by 0.7 p.p. to 4% due to strong support from the global economy.

It said the revision is attributable to an improved GDP growth estimate for Russia this year, from 3.3% to 4.1%. The pace of Russia’s economic recovery has exceeded expectations. Oil prices are higher than projected before and higher budget revenues are likely to result in additional support for business activity on the spending side.

The EDB’s GDP growth forecasts for Armenia and Belarus have also been raised to 4.2% and 1.3% in 2021, respectively. The stronger economic recovery of Russia, a key trading partner of Armenia and Belarus, has boosted the exports of these countries in the first half of the year. However, Belarus is projected to see a slowdown in economic growth in the second half of the year due to the introduction of restrictive measures by the U.S., EU, and UK.

The EDB maintains its projection for Kazakhstan’s economy to grow by 4% in 2021. High oil prices will continue to support economic activity in Kazakhstan. However, the more protracted effect of restrictive measures largely offsets the positive impact of the external environment.

The EDB’s growth forecasts for Kyrgyzstan and Tajikistan for 2021 are maintained at 3.9% and 6.1%, respectively. The faster-than-projected recovery of the Russian economy may not have a significant effect on the growth of the Kyrgyz and Tajik economies this year, as restrictions on cross-border labor migration are set to linger.

“The rapid recovery of the global economy, fuelled by credit and budgetary injections in developed countries, is driving asset prices up massively,” said Even Vinokurov, EDB and EFSD Chief Economist.

“Temporary factors, such as pandemic-induced disruptions in production chains, the shrinking choice of suppliers and components, and the reduced supply of certain crops, also contribute to this situation. As a result, we are seeing a global spike in inflation. Almost forgotten in the 2010s, rising inflation rates have not only returned to the agenda of central banks globally, but have also become a difficult challenge for monetary policy,’ he said.

EDB analysts forecast the average inflation in the Bank’s member states to slow from 6.6% YoY in May to 5.6% by the end of 2021 due to an easing of demand-side inflationary pressures and the recovery of production chains. In Armenia, the EDB expects inflation of 5.4% at the end of the year; in Belarus, 8.7%; in Kazakhstan, 6.7%; in Kyrgyzstan, 7.7%; in Russia, 5%; and in Tajikistan, 7.4%.

In the face of heightened inflationary pressures, the EDB forecasts further cuts in monetary stimulus in most countries in the region. The Bank’s analysts expect Russia’s key rate to rise to 6–6.5% to keep the economy from overheating. With the projected slowdown in inflation, the Bank expects a transition to neutral monetary conditions in most EDB member states over the medium term.

Armenia's acting Prime Minister Nikol Pashinyan said on July 1 that the economic growth projection for 2021 was revised upward- from the previously forecast 3.2% to 6 %.

On June 15, Armenia's Central Bank chairman Martin Galstyan said the regulator had again revised upward its economic growth forecast for 2021 to 4.6%. According to him, the upward revision was prompted by the growth in the services sector, which the bank believes will grow by 6.2% this year, up from its earlier forecast of 1.2%.

The World Bank forecasts 3.4% growth for 2021, 4.3% for 2022 and 5.3% for 2023. The IMF expects 1% growth in 2021. According to S&P Global Ratings, Armenia's real GDP growth will be 2.5% in 2021 and 4.5% in 2022-2023.

The Eurasian Development Bank (EDB) is an international financial institution promoting integration and development in its member countries. Its charter capital totals US $7 billion. The EDB’s portfolio mainly consists of projects with an integration effect in the areas of transport infrastructure, digitalization, green energy, agriculture, industry, and mechanical engineering.-0-