Central Bank chief warns escalating Middle East conflict could push Armenia’s

Central Bank Governor Martin Galstyan warned on Tuesday that Armenia’s economy cannot remain unaffected by the ongoing military operations in the region, and that the escalation of the situation could lead to an inflation rate of 1.2–1.7% in Armenia.

“Our estimates indicate that inflation could be around 1.2–1.7%. Other contributing factors include the increase in oil prices, some price increases resulting from the use of alternative import routes, and partial substitution of food products imported from Iran. This falls within the realm of risks — we are not saying it will happen, but if it does, the impact on inflation would be 1.2–1.7%,” he said when asked about the possible impact of the escalation.

According to the Central Bank Governor, there are several channels through which the situation could affect Armenia’s economy, the first and perhaps most significant of which is the impact of the conflict on the global economy and, for example, on economic growth and overall developments in the United States.

“Our assessment is that the conflict in the Middle East increases stagflation risks. On one hand, it raises the risk of an economic slowdown; on the other hand, it carries some potential for higher inflation, which would be quite undesirable for us. If there is a decline in global economic activity, it will inevitably affect Armenia’s domestic economic growth and development.

For example, if external demand decreases, this will naturally impact our economic performance, and the effects may not be purely economic — they could also have psychological consequences. For instance, people planning to visit Armenia this year might refrain from traveling if they see developments around the country moving toward negative scenarios.

The second potential issue, from a risk perspective, is the limitation of Armenian companies’ ability to sell goods in Middle Eastern markets. As a result of these logistical problems, exports could also be partially restricted. We believe there are some accumulated risks in this area.

The third is developments related to oil prices. Oil prices directly affect inflation, but there are also secondary effects, because oil and other energy sources constitute a portion of the overall production cost of goods, which could increase the prices of our products from a supply perspective.

Combining all these factors, we believe there are certain risks that could lead to lower inflation due to weak demand, as well as inflationary risks that could result in higher price levels,” said Martin Galstyan, emphasizing that a clearer picture of the impact will emerge from the March economic indicators.

At the same time, the Central Bank Governor does not yet see a risk to real estate prices or to the repayment capacity of individuals with mortgage loans.

“At this time, we do not see those risks. If the conflict continues and unfolds, for example, along the lines of a Syrian-type scenario, it could certainly have a very negative effect on Armenia and neighboring countries. But at the moment, there are no grounds for such materialization. We need to monitor developments, and if necessary, we will intervene in a way that keeps our economy protected from negative scenarios,” he concluded.