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World Bank downgrades its outlook for Armenian GDP growth in 2016

08.01.2016, 15:15
In its latest Global Economic Prospects report the World Bank has downgraded its forecast of Armenia's GDP growth in 2016 to 2.2%. The previous report released in 2015 June estimated that the Armenia's economy in 2016 would expand by 2.7%.

World Bank downgrades its outlook for Armenian GDP growth in 2016
YEREVAN, January 8. /ARKA/. In its latest Global Economic Prospects report the World Bank has downgraded its forecast of Armenia's GDP growth in 2016 to 2.2%. The previous report released in 2015 June estimated that the Armenia's economy in 2016 would expand by 2.7%. 

The latest report expects Armenia’s GDP growth in 2015 to be 2.5%, up from its previous forecast of 0.8%. It also expects the Armenian economy to grow by 2.8% in 2017, down from earlier projected 3% and to rise to 3% in 2018.

The report says the main factors behind the slow pace of growth in Armenia are the impacts of the Russian economy through trade and remittances. For example, a 1-percentage-point growth decline in Russia reduces GDP in Armenia and Kazakhstan by 0.6 and 0.3 percentage point, respectively, two years after.

It says Armenia, Kyrgyz Republic, Moldova, Tajikistan, and Ukraine, receive substantial remittances from Russia, and these are a consumption-sustaining source of income for many households. Because of the downturn in Russia and exchange rate effects, remittance flows to the Europe and Central Asia (ECA) region (expressed in U.S. dollars) contracted in 2014, and are projected to fall sharply again in 2015: more than 15 percent in Ukraine, 30 percent in Tajikistan, and 59 percent in Uzbekistan.

The reports says growth in Europe and Central Asia (ECA) has slowed in recent years, decelerating from 3.9 percent in 2013 to 2.3 percent in 2014, and to an estimated 2.1 percent in 2015. The eastern part of the region (Central Asia, Eastern Europe, and South Caucasus) has suffered acutely from low commodity prices (Kazakhstan), spillovers from Russia (Belarus, Georgia, Moldova), and conflict (Ukraine). 

Commodity exporters, especially of oil, are under pressure as persistent low prices move current accounts into 2016 deficit, push down high levels of reserves, and weaken currencies. 

The report says also developing economies are forecast to expand by 4.8 per cent in 2016, less than expected earlier but up from a post-crisis low of 4.3 per cent in the year just ended. Growth is projected to slow further in China, while Russia and Brazil are expected to remain in recession in 2016. 

Although currency depreciation and exchange rate flexibility may help economies adjust, it can result in accelerating inflation, necessitating tighter monetary policy. As regards fiscal policy, while several commodity exporters had built substantial buffers during the commodity boom years, these are being eroded as budgets swing into deficit, narrowing the space for significant further stimulus. -0-