Armenia: Country outlook

Content Type
Country Data and Maps
Economist Intelligence Unit
No abstract is available.
Economy, Outlook, Forecast, Overview
Political Geography

Armenia: Country outlook


POLITICAL STABILITY: The prime minister, Nikol Pashinian, was appointed in May 2018 after mass protests had toppled the country's long-serving leader, Serzh Sargsyan. In a snap parliamentary election in December 2018, the My Step Alliance, a bloc led by Mr Pashinian, won two-thirds of the seats in parliament. Only two other parties have parliamentary representation--the Prosperous Armenia Party (PAP) of Gagik Tsarukian, a wealthy businessman, and the pro-Western Bright Armenia party; Mr Sargsyan's former ruling Republican Party of Armenia (RPA) is no longer represented.

ELECTION WATCH: The next parliamentary election will be held on June 20th 2021. Support for Mr Pashinian and the My Step Alliance has been consistently falling in the aftermath of the Nagorny Karabakh conflict. However, the opposition has largely been discredited since the Velvet Revolution in 2018 and there is still some level of public distrust for the parties associated with the former regime. The Economist Intelligence Unit expects Mr Pashinian to win the upcoming election, but to fall short of a parliamentary majority. There is a significant downside risk to this forecast, if the opposition goes to the election on a unified platform with a strong prime-ministerial candidate. A failure to form a stable government will lead to a political deadlock in the country. This will delay policy decision-making and implementation. This may cause further shocks while the country is battling the coronavirus pandemic.

INTERNATIONAL RELATIONS: The main focus of Armenia's foreign policy is the status of the Nagorny Karabakh region and its predominantly Armenian population. Following a violent war in the 1990s, the conflict has remained frozen, with some major escalations throughout the years. Occasional international summits up until 2020 achieved little progress. In mid-July fighting broke out near Nagorny Karabakh along the northern border between the Tavush region of Armenia and the Tovuz district of Azerbaijan. On September 27th fighting along the line of contact intensified, with both sides reporting military and civilian casualties. In response, Armenia declared martial law and mobilised its male population.

POLICY TRENDS: The Pashinian government has called for a radical crackdown on corruption, resulting in an upsurge in corruption-related investigations launched by law-enforcement bodies. It has continued efforts initiated under the Sargsyan administration to reduce corruption in the customs and tax administrations, and increase procurement transparency, which will gradually improve the business environment. In 2021-25 (the forecast period) we expect that the government will continue implementation of its five-year strategy, which aims to boost economic growth via structural reforms, export promotion and greater foreign investment.

ECONOMIC GROWTH: In 2020 Armenia's real GDP contracted steeply, by 7.8% year on year, owing to suppressed domestic demand and a sharp deterioration in external demand. This is the country's deepest recession since 2009, when real GDP contracted by a staggering 14.1%.

INFLATION: In 2020 inflation averaged just 1.2%, owing to a slump in private consumption, slowing wage growth and low global oil prices. In 2021 we forecast that inflation will increase to an average of 4.8% as domestic demand and oil prices rise. In 2022-25 we expect inflation to average 4.1%, reinforced by private consumption growth, faster global price growth for food, energy and manufactured goods, and a depreciating currency. However, inflation expectations are poorly anchored and there is a significant risk of price shocks.

EXCHANGE RATES: The Central Bank of Armenia has allowed the Armenian dram to float freely. The dram remains exposed to fluctuations in the Russian rouble. When the US imposed new sanctions on Russia in 2018, the rouble weakened against the US dollar; the dram followed suit, but then recovered in line with the rouble.

EXTERNAL SECTOR: Armenia has traditionally run wide current-account deficits and has a significant external debt stock (about 88.6% of GDP in 2018). In 2020 we estimate that the current-account deficit narrowed to 6.7%, from 7.2% in 2019, owing to suppressed goods imports and a slightly improved services balance. In 2021 we expect the current-account balance to widen slightly, to 7.2%, owing to higher importing costs.

Data provided by: