On 26 November, the Eurasian Development Bank (EDB) published its Macroeconomic Forecast for its Member States for the year 2020.  According to the forecast, the Armenian economy is expected to decline by 6.4% of its GDP by the end of the year. 

The report outlined that a deeper economic contraction in the region has been avoided, largely due to government support to the population and businesses. In Armenia, this was due to a significant social and economic support (about 3.7% of the country’s GDP) which should mitigate the decline in the country’s output by about 1.8-2.2% in 2020.

According to the report, the government of Armenia has earmarked a total of 230 billion drams to support the economy to offset the consequences of the coronavirus crisis. 150 billion drams (2.3% of GDP) of this sum were channelled into the measures structured into a series of 24 phased programs as of September 2020. According to EDB's analysts, some of these measures were designed to support agriculture, tourism, small and medium-sized businesses, micro-business, information technology and other industries and others to support companies by co-financing and refinancing their loans and subsidised interest rates. Others were designed as social support for various groups of the population. In addition, support of 1.4% of GDP was provided in the form of tax breaks.

The EDB projected Armenia’s economy to grow by 4.9% in 2021. It was also highlighted that the pre-crisis production levels in Armenia would be achieved in the first half of 2022. The length of the recovery would be largely due to the current year’s significant losses. In terms of inflation, it is expected to slow down in 2021, with the growth rate of the consumer prices index in Armenia to decrease to 1.1% (from 1.2% at the end of 2020). The rising oil prices, geopolitical risks and a recovery in investor interest in risk assets as the pandemic weakens would support Armenia’s currency in 2021. The average exchange rate of the dram to the US dollar was projected at around 492. In addition, in 2021, the Armenian economy would also be  supported by migrant workers’ remittances. The inflow of remittances will increase next year as economic activity in donor countries, primarily Russia, recovers. The EDB estimated that remittances in 2021 will add about 0.5 and 0.8-1 percentage points of GDP growth in Armenia.

In regard to the region, the report outlined that a deeper economic contraction in the region has been avoided, largely due to government support to the population and businesses. The ED analysts outlined that the pace at which the Bank’s member economies will recover from this year’s turmoil will largely depend on the future developments around the pandemic. The baseline projection is based on an assumption that COVID-19 will slow down, and restrictive measures will be eased globally and in the Bank’s countries in the first half of 2021. External demand will start to gradually expand for EDB member states in 2021. The review noted that the easing of social distancing measures will help to revive consumer and investment activity in the EDB region in 2021. Stronger external demand and growing commodity prices will support exports. Monetary policy is expected to remain soft in most of the Bank’s member countries next year. 

The analysts pointed out a number of factors that will constrain economic recovery in the region. The Bank’s baseline scenario suggests that sanitary restrictions would be eased gradually, and social distancing would remain part of daily life at least for the next year. Investment growth would be weak amidst high uncertainty. Government support for the population and businesses through fiscal policies would be reduced. The EDB also noted that projections remained shifted toward lower estimates. This was due to the scenario if the rapid increase in the infection rates cannot be quickly contained and the massive dissemination of vaccines takes more time than expected. Losses in economic growth rates will be greater than in the baseline scenario, specifically twice as slow.