Commentary by Rashad Huseynov, Head of Department at the Center for Analysis of Economic Reforms and Communication (CAERC)

During January–August 2020, Armenia’s economy recorded a 6.4% decline. Listed among the countries with the least effective response to the COVID-19 pandemic, Armenia experienced a reduction in both exports and imports over the first eight months of the year, further deepening its economic downturn.

According to the Statistical Committee of Armenia, the industrial sector—previously a key driver of economic growth—has stagnated amid the coronavirus crisis. In the same period, construction declined by 19.1%, trade by 11.5%, and services by 10.8%. The most severe impact on Armenia’s economy is still expected in the coming period.

Following the violation of the ceasefire on 27 September and Armenia’s military aggression against Azerbaijan, the country faced a large-scale counteroffensive by the Azerbaijani Armed Forces aimed at liberating occupied territories. This development has created serious economic challenges for Armenia.

According to calculations by the Center for Analysis of Economic Reforms and Communication (CAERC), the value of destroyed military equipment and ammunition already exceeds USD 2 billion. However, Armenia’s losses are not limited to military hardware; the continuation of the war is also increasing economic damage.

Reports indicate that a nationwide mobilization has been announced, with approximately 210,000 citizens being drafted into military service and deployed to the occupied territories. Given that Armenia’s economically active population is around 913,000 people, this means nearly 23% of the workforce has been removed from productive economic activity. As a result, these individuals are no longer generating value, which is expected to significantly reduce GDP in the fourth quarter of 2020.

If current trends continue, Armenia is increasingly likely to end the following year in recession. In 2019, Armenia’s GDP amounted to 6,569 billion drams (approximately USD 13.7 billion). According to official statistics, 30.4% of GDP—around 1,998.7 billion drams (approximately USD 4.2 billion)—is generated in the fourth quarter alone.

Given the ongoing war, a significant contraction in GDP in Q4 2020 is expected. Preliminary estimates suggest that if 210,000 citizens are mobilized, Armenia’s daily GDP may decline by approximately USD 10.7 million, resulting in a quarterly loss of around USD 1 billion.

Even in a scenario where hostilities cease, the return of mobilized labor force to productive sectors will take considerable time. Disruptions in production chains, loss of customers, and weakened business continuity will further delay economic recovery.

Under the best-case scenario, the loss of labor and capital across economic sectors will reduce Armenia’s production capacity, leading to a daily GDP decline of approximately USD 3.4 million. Under more severe scenarios, the economic damage could be significantly higher.

Overall, estimates suggest that within the first two weeks of conflict alone, Armenia’s GDP could decline by between USD 47.6 million and USD 149.8 million, depending on the intensity of the conflict.

At the same time, a decline in exports is also inevitable. During the first eight months of 2020, Armenia’s total exports amounted to USD 1.57 billion, already reflecting a 6% decrease. Disruptions in the mining sector—one of the country’s key export industries—further indicate that export performance will deteriorate, widening the trade deficit.

In addition, reduced domestic production will force Armenia, which has limited foreign currency reserves, to increase imports—particularly of food products.

If Armenia continues its aggressive policy and prolongs the conflict, the economic consequences are expected to become even more severe. Beyond 2020, the country is likely to face continued economic hardship in 2021. The combined impact of the pandemic and ongoing military conflict may further deepen losses, leading to rising poverty and increased risks of state-level economic instability.