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Armenia: Country Economic Forecast: 07 Jul 2011

4 Pages Oxford Economics July 07, 2011 SKU: OFE6444881

GDP growth of 2.6% in 2010 was slightly better than forecast, but only half the rate the IMF had projected. Industrial output rose 9.7%, and exports 41%. But the commodity export boom that lifted H1 growth above 6% subsided in H2, while agricultural output fell sharply and services (including construction) stayed subdued. Inflation reached 9.4% at end 2010 and was still 9% in May this year, driven by high food prices (up 14%) and fuel. June's fall to 8.5% heralds a H2 slowdown; but the full-year rate will be about 9%, well above the 2.5-5.5% target range. Base interest rates rose 0.25% points in April and stayed at 8.5% in June, keeping the currency stable but too high for major investment expansion this year. We expect growth of about 4.3% this year if farming avoids last year's poor weather, but the trade deficit remains a medium-term constraint. The 4.6% official growth target for 2011 reflects greater optimism on migrant remittances and on the scale of non-construction investment these will finance. Rises in the minimum wage, benefits and pensions, to shield low-income households, have slowed fiscal deficit reduction, but this remained adequate to disburse the third US$58m IMF tranche in May. Pension funds, launched this year, and automatically enrolling workers under 40 from 2014, will assist long-term deficit reduction. But inflation, unemployment and rudimentary capital markets will limit initial development.

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Armenia: Country Economic Forecast: 07 Jul 2011

Oxford Economics
July 07, 2011

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