Armenia has benefited from a spillover of the war in Ukraine through net immigration of middle-class Russians and other CIS citizens, boosting services exports, domestic consumption and GDP, increasing its two-way trade with Russia and boosting budget revenues.
Yet unless there is a new wave of immigration, growth is set to normalise amid still high unemployment and sluggish credit growth. Budget policy, prudent so far, may face higher military spending if tensions with Azerbaijan re-emerge.
As CPI passed its peak and monetary stance has been conservative so far, there is a scope for cautiously lower local rates. The FX rate, however, is now 24% stronger to USD vs end-2021 and is facing the risk of correction.
On the plus side, the central bank has used the one-off windfall to boost reserves, strengthening external buffers.
