U nder the current external challenges and uncertainties, the development and implementation of such policies in the countries of the world, which are aimed at the high efficiency of risk management and curbing the negative impulses transmitted from the world economy, has gained great importance.  The global structural changes in the world economy have a direct impact on all types of economic activity of the world’s countries, disrupting the normal process of their development. Armenia, being a small open economy and a country with semi-closed borders, is significantly dependent on the outside world, so it cannot remain aloof from geopolitical changes. 

In recent years, the normal functioning of the world economy has been mainly disrupted by the Covid-19 pandemic and the Russian-Ukrainian conflict which started at the end of February 2022. In the case of Armenia, the complex military-political situation, the 44-day war that started on September 27, 2020 and the ethnic cleansing process of Armenians living in Artsakh carried out by Azerbaijan, the economic consequences of which are too early to access. Despite the current circumstances, some positive changes have been observed in the economy of Armenia since last year. In particular, the flow of international visitors has significantly increased in RA, as a result of which the demand has increased, especially in the fields of trade and service.

For years, the mining and agriculture fields occupied the largest share in the structure of the gross domestic product (GDP) of Armenia, but in recent years the picture has changed. The mining sector has lost grounds to the trade and service fields. Studying the RA GDP according to the types of economic activity, we note that according to the data of the second quarter of 2023, the largest share in the GDP structure is devoted to trade: 13.2% compared to 12.3% in the same period last year.  Contrary to that, the share of manufacturing and mining fields in GDP decreased to 10.4% and 3.1% respectively, compared to 10.7% and 5.1% in the previous year. The share of agriculture in the structure of GDP also decreased to 7.1% compared to 10% in last year. In the second quarter, the GDP at current prices was 2 trillion 138 billion 375.5 mil. AMD and the increase was 9.1% compared to the same period of the previous year.

Particularly, in the first 8 months of this year, the increase of the Indicator of Economic Activity (IEA) was 10.4% compared to the same period last year. The IEA high growth rates contributed mainly due to the high growth recorded in the fields of trade and construction, by 23.1% and 17.3% respectively. A significant growth in the fields of trade and services (especially in IT) has been noticed in RA since the Russian-Ukrainian conflict, and the growth of the construction is mainly due to the increase in the volume of construction of residential buildings in the real estate sector and the corresponding increase in demand.

Even so, it should be noted, that a certain decline of 0.1% was recorded in the field of industry, which is mainly due to the decline of the manufacturing industry branch, as well as the relatively low growth of the mining industry branch. During the last 2 years, the volumes of the RA foreign trade turnover have also increased at a fairly high rate: based on the data of January-August 2023: based on the data of January-August 2023, it increased by 53% compared to the same period of last year, including export recorded 51.8% growth, and import 53.8% growth. It is noteworthy, that since the beginning of last year, the foreign trade turnover of RA has recorded a significant growth trend. 

Currently, the certain reduction of uncertainties in the world economy, as well as the negative impulses transferred from the international market to the RA economy, has been the basis for the Central Bank of RA (CB) and a number of other international financial and economic structures to improve the forecasts regarding the economic growth of RA. Evaluating the current economic developments in Armenia and taking into account the high growth rates in the fields of construction and services, CB raised the economic growth forecasts: at the end of 2023, 7.2% economic growth is expected compared to the previous forecast of 6.9%. The RA Government has set the 7% growth rate for 2023, expecting that the current positive developments in the RA economy will continue to be maintained. 

In September of this year, the European Bank for Reconstruction and Development (EBRD) updated the RA economic growth forecast, expecting 6.5% economic growth in 2023, compared to the previous 5% forecast.

According to the latest “Macroeconomic Outlook” report of Eurasian Development Bank (EDB), the improvement of the current situation and economic prospects in Russia will have a positive impact on the volume of foreign remittances and foreign demands of Armenia. As a result, real GDP growth of 7.5% was predicted for 2023, which was improved by 3.3 percentage compared to the previous forecast. A relatively low growth of 5.1% was predicted for 2024. According to the latest forecasts made by EBRD and EDB, at the end the current year the highest growth among the countries of the region is expected in Armenia.

S&P Global Ratings international rating agency predicted a slowdown in economic growth in RA compared to last year due to the decrease in financial flows and the number of international visitors, as well as base effects. The organization expects economic growth of 7.5% in 2023 and 4.5% in 2024. 

Thus, despite the current complex geopolitical situation, in general, the RA economy has managed to absorb the impulses transmitted from the external sector, responding to the existing challenges. In recent years, structural changes have also been recorded in the RA economy, as a result of which trade and services and to some extent also construction are considered the leading branches of the economy.

Economist Meri Boyajyan