Economic Activity in Armenia Slows, Central Bank Reports

The Central Bank's board has decided to leave the refinancing rate unchanged at 6.75%. In the first quarter of 2025, year-over-year inflation accelerated to 3.3% in March. At the same time, normal annual inflation has also increased but remains below the target at 2.0%.

In the second quarter of 2025, there are significant risks of further slowdown in demand in key partner countries of Armenia and an accompanying acceleration of inflation in the U.S. The uncertainty surrounding U.S. economic policy, especially trade policy and its macroeconomic impacts, remains high. Under these conditions, there are substantial risks of price declines in international commodity markets.

On the other hand, with increasing tensions in international trade relations and geopolitical issues, risks of disruption in supply chains and global inflation remain. Uncertainties have increased regarding the extent of demand support from the U.S. fiscal policy, the corresponding increase in debt, and potential effects on long-term interest rates.

In this context, considering the still stringent labor market conditions in partner countries and the overall high inflation environment, it is likely that central banks in leading countries will mainly maintain or gradually ease tight monetary conditions in the near future.

In the first quarter of 2025, economic activity in Armenia has slowed, significantly influenced by the gradual neutralization of certain short-term, non-structural growth factors. The high growth in the construction and services sectors continues to significantly contribute to the activity growth. At the same time, uncertainties regarding the sustainability of growth, long-term prospects, and further trends in domestic demand remain high due to the structural features of economic growth.