Economic growth in Armenia is still likely to accelerate this year despite negative spillover effects of a possible recession in Russia resulting from the crisis in Ukraine, the World Bank said on Wednesday.
In a detailed report, the bank forecast a 5 percent real increase in the country’s GDP, which is virtually identical with growth projections made by the Armenian authorities late last year. But it also warned of “considerable downside risks” facing the Armenian economy, which expanded by 3.5 percent last year.
“While we concur with the projected economic growth of 5 percent per year over the medium term, we suggest more caution for 2014, due to the downside risks from a protracted weakening of the Russian economy,” said the report. “The ongoing crisis in Ukraine and the depreciation of the Russian ruble may have negative consequences for Armenia’s economy, ranging from lower demand for exports to the impact of a weak ruble on dollar-denominated remittances sent home by Armenian migrant workers in Russia.”
The Armenian government acknowledges the possible fallout from the economic slowdown in Russia. Economy Minister Vahram Avanesian singled out last month the impact of Western economic sanctions that could be imposed on Moscow because of its annexation of Crimea.
Russia is Armenia’s leading trading partner, accounting for around one-quarter of its external commerce. It is also by far the largest source of vital remittances sent home by hundreds of thousands of Armenian migrant workers. The cash inflows were equivalent to 14 percent of GDP last year.
The World Bank predicted that Armenian growth should still come in at 4.5 percent if external “downside shocks” on the South Caucasus state’s economy materialize in 2014. “Protracted recession in the Euro area is another downside risk, as the European Union accounts for one-third of Armenia’s merchandise exports,” it said.
The government projected annual growth rates of 6-7 percent and a doubling of GDP by 2025 in its “development strategy” unveiled last year.
The World Bank report calls these targets “overly optimistic,” while praising reforms of the domestic business environment promised by the government. “These reforms are expected to create jobs by reducing the costs of doing business for firms, expanding access to credit to small and medium-sized enterprises, and increasing opportunities for employment and job creation through increased trade and connectivity,” it says.
The report was apparently drawn up before Prime Minister Tigran Sarkisian and his entire cabinet unexpectedly resigned last week. It is not yet known who will replace him. President Serzh Sarkisian said on Friday that he will make “substantial” changes in the executive.