Armenia’s economy runs hot as its export base narrows

Armenia's economy has absorbed a Russian trade embargo, an election and a sharp fall in re-exports, and is still growing at more than 7 per cent. That is a real achievement, but it is the wrong number to watch. Growth this year is coming from building sites, services and money arriving from abroad, while the goods Armenia sells to the world are shrinking. The central bank has now concluded that demand is running too hot. The risk for the next year is an economy that overheats at home while its export base narrows.

What the headline numbers show

The Statistical Committee's economic activity index rose 7.3 per cent in January–August 2026 compared with the same months of 2025, Armenpress reported. The composition matters more than the total. Construction output rose 24.7 per cent, to AMD 471.6 billion. Services other than trade grew 12.8 per cent. Industry grew 7.4 per cent over the eight months, but fell 4.3 per cent year on year in August. Trade turnover, the retail and wholesale sector, was almost flat at 0.7 per cent.

The pace is easing. The index was 7.7 per cent higher in January–July, the World Bank noted, and August on its own was up 5.2 per cent on a year earlier. July had already slowed to 6.5 per cent from 7.4 per cent in June. The World Bank's September update attributes part of the summer slowdown to maintenance at the nuclear plant, which cut electricity output, and notes that construction and non-trade services remained the drivers. Its report also recorded that apartment transactions in Yerevan nearly doubled in July, with prices in the city centre up 12.7 per cent on a year earlier.

Exports are falling while imports climb

Foreign trade tells a different story. Exports in January–August were $4.62 billion, 6.5 per cent lower than a year earlier. Imports were $8.65 billion, up 9.3 per cent. The goods deficit over eight months therefore reached about $4 billion, and imports now run at almost twice the value of exports. August alone offered little relief: exports rose 1.3 per cent year on year, imports 14.9 per cent.

Two different shocks sit inside the export figure, and they should not be confused. The first is the collapse of re-exports of precious metals and stones, a trade that had inflated Armenia's figures in recent years. OC Media, citing first-quarter data, reported that imports of precious metals and stones fell from $377 million to $136 million and that re-exports to the United Arab Emirates fell from $346 million to $41 million. Economists it cited attribute much of the fall in trade with Russia to this unwinding. Its loss shrinks the headline numbers but says little about the competitiveness of Armenian producers.

The second shock is political and falls on real producers. Russia began restricting Armenian agricultural imports in the spring, and on 11 June its agricultural safety agency, Rosselkhoznadzor, banned a wide list of plant products including fresh and dried fruit, vegetables, cut flowers and seeds. The agency cited repeated detection of pests, including khapra beetle in dried food shipments, and said the ban would remain until a framework for safety and traceability was in place. Armenian officials and many observers read the timing, days after the election, as pressure. The World Bank records that exports of vegetable products fell 52.2 per cent year on year in July, and that from 12 June Russia banned around 130 EAEU goods classed as quarantine products, adding fish products from 26 June. Trade turnover with Russia fell 20.5 per cent in January–May to about $2.2 billion, and Russia's share of Armenia's total trade dropped from 35.1 to 28 per cent.

Europe is taking some of the slack

Exports to the European Union rose from about $287 million in the first half of 2025 to more than $516 million in the first half of 2026, an increase of over 80 per cent, according to government figures carried by Public Radio of Armenia. The government has not published a product breakdown, so it is not yet clear how much of that is new agricultural and food trade and how much is metals and other goods that were already heading west.

Brussels has since cut the cost of that shift. On 2 September the Council backed a two-year regulation suspending import duties on around 80 per cent of Armenian exports to the EU, with the European Parliament's vote and formal adoption to follow in September. The EEAS says it covers about 99 per cent of fresh fruit, vegetable and plant exports and more than 91 per cent of beverages and spirits, with tariff-rate quotas on some agricultural lines. It is conditional on rules of origin, administrative cooperation, respect for the essential elements of the EU–Armenia partnership agreement and no new Armenian restrictions on EU goods, and it carries a safeguard clause for EU producers.

This helps, but distance and scale limit it. A tomato grower in Ararat cannot switch from Moscow to Munich in one season, and a two-year window is short for building cold chains, certification and buyers. Moscow's stated position is that the measures are sanitary and will be lifted once safety and traceability are assured, which leaves a technical route back into the Russian market that Yerevan has an interest in testing.

Why the central bank moved

On 15 September the Central Bank of Armenia raised its policy rate by 0.25 percentage points to 6.75 per cent, its first increase since it began cutting from a 10.75 per cent peak. Headline inflation was 4.4 per cent in August and core inflation 4.8 per cent, both above the 3 per cent target and its one-point band. The bank cited strong domestic demand, stronger external demand including tourism, and the risk that inflation expectations drift upward.

Money from abroad is feeding that demand. The World Bank reports that net non-commercial transfers rose 40 per cent year on year in July, from a low base and largely from Russia, and that gross reserves reached a record $6.5 billion in August, about 4.3 months of imports. The budget, planned to run a deficit of 4.3 per cent of GDP this year, was still in surplus through July. If the planned deficit is delivered, most of this year's fiscal stimulus is still to come, adding to demand just as the central bank is trying to cool it.

What the numbers do not show

The published data leave three gaps. There is no product breakdown of the new EU exports, so their durability cannot be judged. There is no clean series separating re-exports from domestic output, so the underlying export trend is blurred. And the sources of the inflow of people and money, and how long it will stay, are not measured directly. Each of these matters more for 2027 than the headline growth rate.

What to watch

Watch the monthly export figure for non-precious goods, not the total. Watch whether the EU regulation is used: early customs data on fruit, vegetables and brandy will show whether duty-free access turns into orders. Watch the central bank's next meetings for a second increase, which would signal that demand is not cooling on its own. And watch whether any Russian restrictions are lifted on technical grounds, which would show whether the sanitary route back is open.

For policymakers in Yerevan, the practical priority is less about growth than about its quality: easing the fiscal stance while the private economy is this strong, and putting public money into the certification, logistics and standards work that turns tariff preferences into exports. For partners, the most useful support is the unglamorous kind, laboratory capacity and market access, rather than further headline pledges.

Sources

• Armenpress — Armenia's economic activity up 7.3% in January–August
• Armenpress — Armenia's foreign trade turnover rises 3.2% to $13.27 billion in January–August
• b24.am — World Bank: Armenia monthly economic update
• ArmBanks — Central Bank of Armenia raised its monetary policy rate for the first time in over three years
• OC Media — Armenia–Russia trade turnover drops by 20.5% in first five months of 2026
• The Moscow Times — Russia Issues Sweeping Ban on Armenian Imports After Pashinyan's Victory
• Public Radio of Armenia — Armenia's exports to EU countries rise by more than 80%
• EEAS — Council backs temporary trade measures to support Armenia