In the first quarter of 2026, the economy of Armenia demonstrated solid growth: the economic activity index increased by 7.1% compared to the same period last year. In March, the dynamics appeared even more impressive — up 11.6% month-on-month and 6.6% year-on-year. However, behind these figures lies a complex and неоднозначная picture, where rapid growth coexists with signs of imbalance.
First of all, it is important to understand that the economic activity index is not the gross domestic product itself, but an operational indicator derived from the performance of key sectors. Its growth does not always signal sustainable development: it may be driven by individual “overheated” segments. This appears to be the case based on the current data structure.
The main driver of growth has been the construction sector. Output in this segment increased by 22% year-on-year, and in March alone surged by 34.4% compared to February. Such rates are rarely indicative of steady development. More often, they point to a spike in activity — either due to large-scale infrastructure projects or an influx of private investment. While this supports overall growth in the short term, it may also signal accumulating risks, as construction is traditionally sensitive to fluctuations in demand and financial flows.
Industry, in turn, shows a more stable but still mixed dynamic. Between January and March, output grew by 13.4% — one of the strongest results among all sectors. However, a 2% decline was already recorded in March compared to February. While not critical in itself, it is an important signal that industrial growth is beginning to lose momentum. If this trend continues, the overall economic indicator may start to slow down along with the industrial sector.
Against this backdrop, the decline in agriculture stands out — down 5.2% compared to the first quarter of last year. This is the only major sector to show negative dynamics. Such a decline is rarely accidental: it may be linked to weather conditions as well as deeper structural issues, ranging from underinvestment to low productivity. In any case, a contraction in agricultural output almost inevitably puts pressure on the domestic market and increases dependence on food imports.
The trade sector shows modest growth — just 2.1% for the quarter. At the same time, the March figure was nearly flat in year-on-year terms. This is an important detail in the broader picture: consumer demand, which often serves as a pillar of economic growth, is beginning to slow. Services appear more resilient, posting a 7.4% increase over the quarter and 7.8% year-on-year in March. This may indicate a gradual shift toward a service-based economy, although without strong consumer demand, this segment could also lose momentum.
Price dynamics also deserve close attention. Consumer inflation stood at 4.2%, while industrial producer prices rose by 9.2%. This gap is one of the key signals of the current economic environment. It suggests that producers are already facing rising costs but have not yet fully passed them on to consumers. In such situations, two scenarios are typically possible: either businesses begin to lose profitability, or consumer inflation accelerates with a lag.
The growth in electricity generation is another important indicator that often goes unnoticed. In the first quarter, it increased by 7.7%. This indirectly confirms that economic activity is genuinely expanding rather than being driven purely by statistical effects. Energy consumption is closely tied to industrial output, transport activity, and overall business intensity.
Foreign trade adds an element of instability to the picture. Overall turnover increased by 4.6% for the quarter, but March showed a noticeable decline: exports fell by 12.6% year-on-year, while imports decreased by 3.2%. The reasons lie largely outside the domestic economy — namely, tensions in the Persian Gulf region that affected logistics. This episode clearly demonstrates the vulnerability of trade flows: even amid domestic growth, external shocks can quickly alter the trajectory.
At the same time, the dynamics of foreign trade appear contradictory. While total turnover grew, the sharp decline in March suggests deeper underlying factors. In recent years, Armenia’s trade expansion has been largely driven by re-export operations. Following 2022, the country became an important transit hub for goods flowing into Russia, which significantly boosted both imports and exports. A substantial portion of this growth was not linked to domestic production but rather reflected the redistribution of external trade flows.
Parallel to this, exports to third countries — including the United Arab Emirates — increased, particularly in categories such as precious metals and other highly liquid goods. In expert discussions, these flows have also been viewed as part of a broader transit chain linking Russia to the UAE.
However, by 2025, the influence of these factors began to weaken, a trend many analysts associate with shifts in Armenia’s foreign policy orientation and a gradual pivot toward the West. Developments in the Middle East have added further pressure to this model. As a result, the growth pattern driven by re-export functions has started to lose its effectiveness.
Against this backdrop, the exchange rate remains relatively stable — around 378 drams per U.S. dollar on average during the quarter. This creates a sense of macroeconomic balance. However, currency stability largely depends on the sustainability of export revenues. If foreign trade continues to decline, pressure on the currency market may increase.
Overall, Armenia’s economy at the beginning of 2026 appears to be growing, but imbalanced. Rapid expansion is driven primarily by construction and industry, while agriculture is contracting and trade is losing momentum. Price pressures are building at the producer level, and external trade remains sensitive to geopolitical developments. This combination is not yet critical, but it calls for close monitoring: if current trends persist, economic growth may slow in the coming quarters, giving way to a more complex phase of adjustment.