Eurasian Fund for Stabilization and Development raises Armenia’s 2026 growth forecast to 5.8%

The Eurasian Fund for Stabilization and Development (EFSD) has raised its forecast for Armenia’s GDP growth in 2026 to 5.8%. In its Regional Economic Outlook Autumn 2026 the fund attributes the change mainly to an upward revision of first-quarter statistics driven by the financial sector, which made the first half stronger than expected. In its summer edition, the fund had expected 5.5%.

The fund expects growth to slow to its potential rate of about 5% in 2027–2029. “The economy is gradually moving towards a more balanced trajectory after several years of rapid expansion,” the outlook says. Armenia’s GDP grew 7.2% in 2025.

Domestic demand drives growth

In the first half, the economy grew 6.0% y/y: 5.2% in the first quarter and 6.7% in the second. Private consumption accounted for more than half of growth, supported by consumer lending (+27.5% y/y) and remittances (+18%). By sector, the largest contributions in the second quarter came from finance (2.2 pp), construction (1.1 pp) and IT and communications (1.0 pp). Re-exports added only 0.1–0.2 pp to growth.

Unemployment fell to 12.8% from 13.1% over the half-year. Real wages, however, rose only 0.8%, compared with 2.4% a year earlier, as inflation eroded gains.

Recent data support the fund’s assessment. According to the Statistical Committee of Armenia, in January–August the economic activity index rose 7.3%, construction 24.7% and services excluding trade 12.8%.

Inflation above target

The fund expects inflation to reach 4.1% by the end of 2026, above the upper bound of the Central Bank’s target range (3% ± 1 pp). Over the medium term, inflation will return to 3%. It peaked in June at 5.1%. Food (3.8 pp) and fuel contributed the most: over the year petrol rose 10%, diesel 19% and gas 76%. Core inflation rose to 4.9%, which the fund sees as a sign of demand-side pressure.

Annual inflation was 4.3% in September. On September 15, the Central Bank raised the refinancing rate for the first time since December 2022, from 6.5% to 6.75%. Bank lending is growing 26.8% y/y, while the share of non-performing loans remains minimal at 1.4%.

Budget: from surplus to consolidation

The budget ran a surplus of 1.3% of GDP in the first half, as capital spending was 43% below plan. Public debt fell from 46.8% to 43.3% of GDP thanks to economic growth and a stronger dram. For the full year, the fund expects a deficit of 3.5% of GDP, narrowing to 2.2% of GDP by 2029. The primary budget balance will turn positive from 2027.

External sector and capital inflows

The fund expects the current account deficit to narrow from 8.7% of GDP in 2025 to 6.7% in 2026 and to average 5.9% of GDP in 2027–2029. Strong domestic demand will continue to support imports. In January–August, goods exports fell 6.5% and imports rose 9.3%.

The fund also looks at capital inflows separately. Net inflows reached about $1.8 billion in the first half. Foreign liabilities of the private sector rose 4.2-fold to $2.1 billion. The share of non-residents in the government bond market rose from 7.5% to 10.9%. The Central Bank bought $1.16 billion over the half-year, and reserves reached $5.92 billion. The fund warns that if global investors become more cautious, capital could flow out, weakening the dram, reducing reserves and raising the cost of external financing.

Risks

According to the EFSD, the main sources of uncertainty are external demand, tourist flows and global food and energy prices. A separate risk is the price and terms of gas supplies from Russia, which accounts for 82–84% of gas imports, with Iran providing 16–18%. More expensive gas could accelerate inflation, weaken the dram and put pressure on the budget.

Compared with other forecasts

The EFSD’s 2026 forecast is above the 5.4% built into the state budget and the estimates of the World Bank (5.6%) and the International Monetary Fund (5.25%). Only the Eurasian Development Bank’s forecast is higher, at 6%. The draft 2027 budget assumes growth of 5.8%. The government aims for average annual growth of 6% over the next five years.