According to the Asian Development Bank (ADB), growth in Armenia has moderated from 8.7% year on year in the first half of 2018 to 6.8% in the same period of this year and it remains robust, reflecting buoyant domestic demand.

The data is given in the Asian Development Outlook (ADO) 2019 Update forecast, published today.

Update raises the growth projection for 2019 from 4.3% (1st ADO report of 2019) to 4,8% while keeping the 2020 forecast unchanged (4.5%).

According to the report, industry excluding construction performed strongly, expanding by 5.2% as growth in manufacturing and mining outweighed lower electricity production.

Construction grew by 3.5%, largely from higher household construction.

Services rose by 9.8% on strong gains in information technology, finance, insurance, and recreation. Unfavorable weather constrained agriculture, which, having contracted by 8.5% in the whole of 2018, contracted further by 6.9% in the first half of 2019.

On the demand side, ADB experts say, private consumption expanded by 14.0% in the half year, encouraged by moderate inflation, positive consumer sentiment, and low interest rates that boosted consumer borrowing. Fiscal consolidation cut public consumption by 5.9%. With sluggish public investment, total investment fell by 20.1%. Net exports continued to constrain growth as imports outgrew exports.

“In light of strong rises in services and private consumption, this Update raises the growth projection for 2019 while keeping the 2020 forecast unchanged. The Central Bank of Armenia maintained its accommodative monetary stance to support growth while the government continued to pursue fiscal tightening. With low inflation and a stable exchange rate against the US dollar, the central bank lowered its policy interest rate by 25 basis points to 5.75% in January 2019.

Average annual inflation slowed from 2.4% in the first half of 2018 to 2.0% in the same period in 2019, with price increases of 3.6% for food, 1.2% for consumer goods, and 0.2% for services. Inflation was 2.5% year on year in June 2019, at the lower bound of the central bank target of 2.5%–5.5%.

This update thus trims the inflation forecast for 2019 but keeps a higher forecast for 2020 in light of cuts in income tax rates to reduce the tax burden on low- and middle-income earners, planned salary increases for certain public employee categories from September and October 2019, pension increases from January 2020, and higher customs duties planned for imports from outside the Eurasian Economic Union,” the report reads.

The current account deficit widened from the equivalent of 10.4% of GDP in the first quarter of 2018 to 10.9% a year later as the terms of trade worsened, the Armenian dram appreciated against the currencies of major trade partners, including the euro and Russian ruble and investment income, employee earnings from abroad, and remittances declined.

Exports fell at an annual rate of 7.8%, and imports by 2.8%, widening the merchandise trade deficit from the equivalent of 14.2% of GDP in the first quarter of 2018 to 14.4% a year later.

In view of developments in the first quarter of 2019, ADB experts raise projections for current account deficits in 2019 and 2020.