ArmInfo. The Armenian economy maintains high growth rates, but the service sector remains its main driver. This is stated in the February "Macroeconomic review", prepared by analysts of the Eurasian Development Bank.
The review notes that at the end of the year 2022, the unprecedented growth in the service sector was due to an expansion in demand for goods and services against the backdrop of an influx of Russian citizens and a significant increase in remittances. The service sector showed an increase of 28.2% y/y. More than half of the growth dynamics of the sector was provided by the expansion of banking activities and software development (+67.7% y/y and 2.4-fold y/y, respectively. This, in turn, is associated with an increase in the number of non-residents, inflow of foreign capital and labor resources.
In 2022, investment in fixed assets also increased in the context of a steady growth in construction. Meanwhile, by the end of 2022, the growth rate of economic activity showed a weakening trend - to 12.8% y/y in December (after 17.5% y/y in October and 13.8% y/y in November) due to slowdown in the dynamics of the services and industry sectors (+27.9% y/y and +2.7% y/y, respectively, in December). This indicates that the peak of last year's strong activity has been passed. This year, demand is expected to gradually stabilize, economic growth will slow down and amount to about 4.2%.
Activity in the transport, restaurant and hospitality sectors also expanded thanks to the strong external demand, as well as domestic demand supported by remittances.
Industry and construction showed strong dynamics throughout the year. Industrial production increased by 7.9% y/y in January-December mainly due to the growth of manufacturing industries (+13.5% y/y): production of building materials, foodstuffs, as well as basic metals. The volume of completed construction works in January-December increased by 12.5% y/y, this was facilitated by construction financed by organizations. More than half of the volume of construction work was carried out in housing construction against the backdrop of high growth rates of mortgage lending (+29.7% y/y as of the end of December 2022).
The foreign trade deficit in January-December increased compared to the same period of the previous year. The negative balance of trade in goods has increased to $3.4 billion in 2022 ($2.3 billion in 2021). Exports outpaced imports in terms of value growth, with deliveries almost doubling year-on-year over the past five months. In the dynamics of exports of goods (+77.7% y/y in 2022), precious stones and metals, machinery and equipment, and food products played the main role. Import volumes increased (+63.5% y/y) across all commodity groups, equipment, mineral products and vehicles made the largest contribution. The export of from Armenia to the Russian Federation increased 2.9-fold over the past year, due to the limitation of supplies from other countries to the Russian Federation, and the negative balance of trade with Russia decreased to $211 million ($945 million in 2021) . Inflation in Armenia continued to slow down in December, amounting to 8.3% y/y after 8.8% y/y a month earlier. Such dynamics was facilitated by a slowdown in the growth of prices for food and non-food products.
The revaluation of the Armenian dram also had a disinflationary effect on prices. Prices for services continued to rise in December mainly due to the strong consumer demand. Core inflation slowed to 9.5% y/y in December from 9.9% y/y a month earlier. The Central Bank of the Republic of Armenia kept the refinancing rate at 10.75% at its January 31 meeting. Bank experts believe that the refinancing rate can be maintained at the current level in the first quarter of 2023 amid still strong demand.
