The Main Reasons for Armenia's 8.7% Economic Growth in 2023

In 2023, an 8.7% economic growth was recorded in the Republic of Armenia. Let us assess what primarily secured that economic growth.

Chart 1. Main sectors contributing to GDP (2023)

️In 2023, Armenia’s GDP registered an 8.7% growth.

️In the GDP structure, the largest growth in 2023 was provided by “Wholesale and retail trade; repair of motor vehicles and motorcycles” at 2.9 percentage points, “Information and communication” at 1.7 percentage points, and “Construction” at 1.1 percentage points.

The increase in the real volume of GDP was constrained by the “Financial and insurance activities” sector by -0.6 percentage points, and the “Mining and quarrying” sector by -0.2 percentage points.

Agriculture has had negative growth over the last 4 years and negatively contributes to economic growth.

Chart 2. Main sectors contributing to GDP (2022)

A comparison of the components affecting GDP growth in 2022 and 2023 reveals significant differences. “Financial and insurance activities” stand out. Although this sector contributed the most to the economic growth of 2022, with a significant 2.8 percentage points, its contribution in 2023 was negative. We note that the banking system is a part of this sector. It is concerning that the financial and banking sector, which registered a 48.6% growth in 2022 (see Chart 3), registered an 8% decline in 2023.

The decline of the financial and insurance sector in 2023 can be attributed to two main reasons. First, in 2022 significant capital flowed into the banking system, which led to a 48.8% growth in the financial sector and a tripling of the banking sector’s net profit within one year. However, in 2023 an increase in bank capital outflow and a decrease in inflow were observed, which negatively impacted the banking system. Second, a significant contributing factor was the loss of Artsakh in 2023, where the banking system had made significant investments, which led to a contraction in the banking sector in 2023. The banking system was forced to write off all assets that were located in Artsakh.

For additional details on capital outflow from Armenia, see the following material: 💸🔚🏦 Capital Outflow.

Chart 3. Differences in GDP growth by factors, 2022 and 2023

Compared to 2022, economic growth was relatively smaller, which is also reflected in the 3rd chart, however a double-digit 12.6 percent economic growth was secured in 2022, and 8.7 percent in 2023, which is also quite a significant growth rate. In 2023, 0.6 percentage points of the 8.7 percent GDP growth was provided by the “Arts, entertainment and recreation” sector, which barely contributed to economic growth in 2022. This is also visible in the 3rd chart, where this sector, as well as wholesale and retail trade, and public administration, were the main branches that secured much more growth than in 2022.