Russian-Ukrainian Conflict to Have Negative Impact On Armenian Economy – World Bank

YEREVAN — The Russian-Ukrainian conflict will have a negative impact on the Armenian economy in several areas, including trade, remittances, as well as in the context of commodity prices and foreign investment, according to a World Bank review.

It says rising global food prices will affect the Armenian economy and may increase inflationary pressures. In addition, the Armenian economy is closely linked to Russia through trade, money transfers and foreign direct investment. In 2021, almost 30% of Armenia’s exports (6.1% of GDP) went to Russia, and thanks to the diversification of the export basket, exports included alcoholic beverages, textiles and food products.

A slowdown in economic activity in Russia could reduce demand for these commodities, and a relatively higher devaluation of the ruble could reduce the competitiveness of Armenian exports, according to the review.

About 40% of the total number of foreign tourists visiting Armenia in 2021 were from Russia. Although the number of tourists is likely to decrease, the temporary relocation of people from affected countries to Armenia could lead to an increase in the number of arrivals.

Money transfers from Russia, in terms of their share in GDP, have declined in recent years, but nevertheless remain significant and account for about 5% of GDP, covering almost a third of the trade deficit in goods. These flows are likely to decline due to weaker economic activity in Russia, devaluation of the ruble and limited financial flows from Russia.

With a worse economic downturn in Russia, many labor migrants may be forced to return to Armenia, putting pressure on the domestic labor market and fiscal spending.

Inflationary pressures are expected to increase, driven by rising global commodity prices and possible disruptions to supplies due to the war.

Armenia’s foreign trade in 2021 grew by 17.7% from the previous year to $8,379,234.2 billion, The largest foreign trade partners of Armenia in 2021 were Russia ($2.6 bln, up 20.9% from 2020), Ukraine ($168.9 mln, up 12.4%) and Belarus ($86.2 mln, up 7.8%).

According to the official data, the number of foreign tourists visiting Armenia in 2021 amounted to 870,308, compared to 360,338 in 2020, an increase of 2.4 times. The bulk of foreign tourists were from Russia (350,569 people or 40.3% of the total), Iran (91,148 people or 10.5%) and Georgia (70,630 people or 8.1%). In 2019, some 1,894,377 foreign tourists visited Armenia.

Armenian government’s growth projection for 2022 is 7%, and inflation is set at 4% (± 1.5%).

According to official statistics, the 12-month inflation in February 2022 was 6.5%.