EDB excludes risk of “overheating” in Armenian economy from construction and lending (EXCLUSIVE)

YEREVAN, December 12. /ARKA/. There is no risk of “overheating” in the Armenian economy due to increased investments in construction and lending. This was stated by Alexei Kuznetsov, head of the EDB's analytical work directorate, in an interview with ARKA news agency

"Certain conditions must be in place for “overheating” to occur, including excess consumer demand, inflation, and an increase in the debt burden on households. However, there are no such risks at the moment," he said.

The head of the bank's analytics department noted that economic growth in Armenia reached 6% from January to September 2024.

At the same time, the construction sector contributed 1 percentage point to this growth (approximately the same as in 2023), while total investment in fixed capital (including construction) accounted for about 2 percentage points (the same as in 2023), with the construction sector's share in GDP nearing 7%.

Therefore, as Kuznetsov noted, the construction sector cannot be the cause of “overheating,” as the Armenian economy is currently not heavily dependent on this sector.

“The expansion of public spending on capital investments, as well as the increase in the potential of the Armenian economy in recent years, helps balance supply and demand, reducing the risks of overheating,” he said.

According to forecasts by EDB analysts, Armenia's GDP is expected to grow by 6% in 2024 compared to last year, although a growth of 7.5% was previously projected.

"The main reason for the downward revision of the forecast is the revision of GDP data for the first quarter of 2024. Additionally, since the end of the second quarter, there has been a slowdown in industrial growth, particularly in manufacturing, where production rates have declined, including in the precious metals sector, which had strongly supported the economy in 2023," Kuznetsov said.

At the same time, he noted that economic growth in 2025 is projected to reach 5.5%. The economy will be supported by stimulative fiscal and monetary policies.

"In 2025, thanks to stimulative fiscal and monetary policies, domestic demand will continue to grow, helping sustain economic growth at 5.5%. As household incomes rise, domestic consumption will become a key driver of Armenia's economic growth," Kuznetsov said.

In the GDP structure, household consumption accounted for 65-70% in 2023 and the first nine months of 2024.

Kuznetsov also did not rule out that Armenia's economy could receive a positive boost in 2025 from increased external demand from its key trading partners.

Figures and Forecasts for the Armenian Economy

Economic growth in Armenia is projected at 7% in the state budget for 2024 and 5.1% in the budget for 2025.

The EDB forecasts Armenia's GDP growth at 6% in 2024 and 5.5% in 2025. The WB expects the economy to grow by 5.5% in 2024 and 5% in 2025.

The IMF forecasts a 6% growth for Armenia in 2024 and 4.9% in 2025. The EBRD expects economic growth of 6.2% in 2024 and 4.8% in 2025. The ADB forecasts 5.7% growth for 2024 and 6% for 2025.

According to Fitch Ratings, the economy will grow by 6% in 2024 and 4.9% in 2025. S&P forecasts 6.2% growth for 2024, and the UN expects the Armenian economy to grow by 5.2% in 2024 and 4.8% in 2025.