YEREVAN

Armenia’s central bank has revised its economic growth forecast to 5.4 percent in 2021 from a previous projection of 4.6 percent, backed by rapid growth in the service sector and agriculture.

Though Armenia reported rapid growth in recent years, a year of restrictions to curb the spread of the COVID-19 and a six-week conflict between Azerbaijan and ethnic Armenian forces over the Nagorno-Karabakh region and surrounding territories have taken their toll on its economy. In November, Armenia accepted a Russian-brokered ceasefire to end the conflict, which secured territorial gains for Azerbaijan. The country’s economy contracted by 7.6 percent in 2020, mainly reflecting a decline in services and trade.

The economy started to show its first signs of recovery in May. That led to the revision of the economic growth forecast by the government to almost twice the rate it previously predicted – to 6 percent from 3.2 percent.

Gross domestic product (GDP) shrank 3.3 percent year-on-year in the first quarter of 2021, but grew by 13.1 percent year-on-year in April-June and by 17.4 percent compared to January-March of this year. In January-July, economic activity accelerated by 5.2 percent year-on-year. In July alone, economic activity expanded by 5.8 percent year-on-year.

The central bank, which revised its economic growth forecast to 4.6 percent from 3 percent in June, said that two main drivers of the higher growth would expand more rapidly this year than had been projected earlier – the service sector would grow by 8.1 percent, while agriculture – by 4.2 percent.

In addition, industrial output is expected to grow by 4 percent, up from an earlier forecast of 0.4 percent. Higher commodities are also helping fuel growth, as copper is one of Armenia’s main exports.

The World Bank predicts 3.4 percent growth in 2021 and 4.3 percent in 2022, while the International Monetary Fund projects growth this year at 1 percent.

In May, Fitch Ratings affirmed Armenia’s long-term foreign-currency issuer default rating (IDR) at ‘B+’ with a stable outlook.

Fitch Ratings said in July that Armenia’s economy would experience a moderate recovery this year and next as the country returned to growth after the COVID-19 pandemic and a flash war with Azerbaijan.

GDP will expand 3.2 percent in 2021 and 4.0 percent in 2022, the rating agency said, adding that while economic activity was returning, some industries, such as banking, still continued to be affected by the recent downturn.

Fitch said that Armenia also had a robust macroeconomic and fiscal policy framework, and a credible commitment to reform, both of which were underpinned by the IMF stand-by arrangement.