Armenia’s economy could contract by as much as 2 percent if it fails to find new markets for goods hit by Russian export restrictions, Central Bank Governor Martin Galstyan warned on June 16, naming a deflationary shock and pressure on the dram as the other leading risks.
Speaking at a press conference, Galstyan said total Armenian goods exports to Russia account for roughly 6 percent of GDP, but the damage is concentrated in agriculture and several branches of the processing and food industries, the sectors that face the brunt as Armenia races to diversify its trade away from Russia. The Central Bank’s sensitivity analysis found that the most vulnerable sectors together make up about 1.5 to 2 percent of GDP, which is what sets the ceiling on the potential decline.
“If, for example, we fail to diversify markets and remain exclusively in the Russian market, the impact on our inflation may be expressed in an increase in supply within Armenia,” Galstyan said. “As a result, we expect certain anti-inflationary phenomena; in particular, in the case of vegetables, still or carbonated mineral waters, alcoholic beverages, as well as stone fruits.”
That oversupply effect carries its own price. Galstyan estimated the deflationary impact could reach up to 0.6 percent if the goods cannot be redirected abroad and instead remain inside Armenia, swelling domestic supply. He pointed to flowers as one example of a product that had relied heavily on the Russian market before the restrictions took hold. The share of basic products such as alcoholic beverages in total consumption is large, he noted, so Moscow’s decisions hit that sector directly.
The third major risk falls on the currency. Galstyan said that if exports drop sharply and the loss cannot be offset by other parts of the balance of payments, such as capital flows, the situation could put pressure on the Armenian dram against the US dollar.
The strain is not limited to what Armenia sells. Galstyan said the restrictions are also raising concern among Armenian businesses over imports, with problems emerging around winter wheat seeds and milk powder from Russia. Those disruptions could affect companies’ ability to meet their loan repayment obligations.
In response, the Central Bank and the government are already weighing scenarios to support the economy through the banking system, drawing on measures Armenia deployed during the coronavirus pandemic and the 2020 Artsakh war.
Galstyan stressed that the worst outcomes are avoidable. If Armenia spreads its exports across new markets and holds volumes steady, he said, the negative impact would be mitigated very quickly.
The restrictions landed in the weeks before Armenia’s June 7 parliamentary elections, when Russia imposed bans and curbs on numerous Armenian goods that remain in force today. The move pushed exporters to seek alternative markets, including in the European Union, which has since stepped in with support. European Commission President Ursula von der Leyen announced more than €50 million in immediate financial assistance following a phone call with Prime Minister Nikol Pashinyan, along with measures to expand export opportunities for Armenian products. Russia has cited phytosanitary violations as the basis for the bans, a justification the EU has widely characterized as “economic coercion.”
