Armenia

Growth remains very strong but is slowing

After remarkably strong growth since 2022, Armenia’s economy is expected to remain very robust in 2026, albeit at a more moderate pace. The normalisation trend reflects the gradual dissipation of exceptional migration inflows from Russia following the war in Ukraine, as well as the adjustment of re?export activities that had strongly supported economic activity. In 2025, the decline in exports and industrial output—driven in particular by the full closure in March of a channel allowing the re?export of Russian gold, despite it having been under international sanctions since 2022—highlighted the dependence of certain segments on these flows. In this context, growth is increasingly reliant on domestic drivers. Economic activity will continue to be supported by the construction sector, which recorded an exceptional expansion in 2025 (+20%), underpinned by a high level of public investment, particularly in infrastructure projects financed by international financial institutions (IMF and EU). Higher value?added segments such as ICT (8% of GDP) and financial services remain well oriented and will continue to contribute to the transformation of the economic model. Private investment remains more uneven and constrained by still?restrictive financing conditions, with the policy rate maintained at 5% in April 2026, but overall investment remains elevated thanks to public support and external financing from Russian, Asian, and European sources.

Household consumption (67% of GDP) will remain the main driver of economic activity, supported by continued growth in real wages (+6% year?on?year in the first months of 2026) and by an improving labour market, with unemployment declining from 15% in early 2025 to close to 12% in early 2026. However, this momentum is being increasingly restricted by the return of inflation (4.6% in March 2026) that is being mainly driven by food prices and now exceeding the Central Bank of Armenia’s target range (2–4%). This is being compounded by a less favourable external environment: rising energy prices amid tensions in the Middle East and the fact that Brent crude has climbed back above USD 100 per barrel, could intensify inflationary pressures and weigh on household purchasing power in the second half of the year. At the same time, labour shortages are emerging in high?growth sectors, particularly construction, that are fuelling wage pressures and revealing capacity constraints. In this context, growth will become more closely dependent on domestic drivers and increasingly exposed to internal constraints.

Twin deficits to stay high

As in 2025, the budget is expected to remain in deficit in 2026. This trajectory reflects a continuation of the expansionary fiscal stance, driven both by the electoral context and by rising social spending, notably related to the hosting of more than 100,000 refugees from Nagorno?Karabakh since 2023. Public investment expenditure is also set to continue increasing, particularly in transport infrastructure and the road network, supported by international financial institutions (IFIs). The 2026 budget (+5% compared to 2025) confirms this trend, with higher health spending and the introduction of a universal health insurance system, while defence spending is expected to decline by around 15%, after having already reached about 6% of GDP. On the revenue side, an upward adjustment of the VAT rate (currently at 20%) is being considered to broaden the tax base, although its timing remains uncertain. Financing will continue to rely on domestic resources and IFI support (EU, IMF, EBRD), which helps limit short?term risks. In this context, public debt—still relatively low—is expected to continue rising at a moderate pace, with a largely concessional structure (around 80%), mitigating refinancing risks.

The current account is expected to remain in deficit in 2026, and even more markedly than in 2025. The adjustment of exports following the closure of re?export channels (notably for gold) is weighing on trade dynamics, while the export base remains concentrated in low value?added products (diamonds, metals, agricultural goods). Russia remains the main trading partner (over 40% of total trade and nearly 90% of agricultural exports), sustaining a high level of dependence, even though some flows are being redirected toward the United Arab Emirates and the European Union (EU). Imports are set to remain elevated, supported by strong domestic demand and high energy dependence, limiting any significant improvement in the external balance. External risks have increased amid regional tensions: the Iranian corridor, which accounts for a significant share of trade, could be disrupted, while rising energy prices are putting added pressure on the trade balance. In this context, external financing needs remain substantial, but liquidity risks are contained thanks to continued support from international partners and sustained access to financing.

Elevated political risks ahead of the elections

Political risk is expected to remain elevated in 2026, amid persistent internal tensions and the approach of parliamentary elections scheduled for June. Prime Minister Nikol Pashinyan is expected to remain in power following the legislative elections, in the absence of a credible alternative, despite weakened popularity since the loss of Nagorno?Karabakh in 2023. Tension with the opposition remains high but are now further compounded by an open confrontation with the Armenian Apostolic Church, which has publicly accused the government of having ceded territory. This standoff continues to further weaken the executive and is fuelling already elevated public discontent. In this context, the 2026 campaign is expected to revolve around a clear choice between continued rapprochement with the European Union and a more nationalist line promoted by a fragmented and partly pro?Russian opposition. Despite a decline in electoral support in recent years, Pashinyan retains an advantage, notably due to growing anti?Russian sentiment following Moscow’s lack of support during the Azerbaijani offensive. However, the gradual rise of new political parties and the hardening of political debate could increase existing instability, with a non?negligible risk of social tension and snap elections after 2026.

On the external front, the outlook remains dominated by the peace process with Azerbaijan, which influences the broader political and economic balance. A preliminary agreement has been reached, but major points of contention persist, notably the revision of the Armenian constitution and the issue of the Zangezur corridor. Any further concessions remain politically sensitive and could reignite internal tension, even as the authorities seek to secure a durable agreement. Over the medium term, the signing of a peace treaty remains likely but at the cost of significant political adjustment. At the same time, Armenia is pursuing a strategic reorientation toward the West, with a clear intention to deepen ties with the European Union and is expected to apply for EU membership around 2026–27. This shift is accompanied by a lasting deterioration of relations with Russia despite limited attempts at rebalancing the forces in play, particularly in the energy sector. Meanwhile, the gradual normalisation of relations with Turkey could open up new economic opportunities, especially in trade and regional connectivity, but remains contingent on how relations with Azerbaijan play out.

Last updated:April 2026