According to the latest report from the Central Bank of Armenia, the country's labor market is facing a paradoxical situation: despite rising official unemployment, there are signs of a shrinking shadow economy and an increase in formal employment.
A household labor force survey conducted in the first quarter of 2024 revealed a concerning trend: the unemployment rate in Armenia reached 15.5%. The Central Bank emphasizes the need to closely monitor the potential consequences of this increase, given the existing uncertainties regarding the unemployment level.
Interestingly, the rise in unemployment was due to a reduction in employment rather than a significant increase in labor force participation. This may indicate a weakening and adjustment of demand conditions in the economy. However, the situation is complicated by another seemingly contradictory fact: the number of officially registered employees, according to the State Revenue Committee's database, continues to grow.
Central Bank experts propose several interpretations of this paradox. On the one hand, this could indicate tighter labor market conditions than household survey results suggest. On the other hand, the increase in registered workers may reflect a gradual reduction in the shadow labor market and growth in formal employment—a positive trend for the economy in the long term.
Another important indicator of the labor market's health is wage dynamics. In recent months, there has been a noticeable slowdown in wage growth in the private sector. In July 2024, this figure stood at just 4.1% year-on-year, significantly lower than in previous periods. This indicates a substantial weakening, or even neutralization, of labor market pressures on the economy.
The Central Bank of Armenia also highlights the impact of migration on the labor market. A key uncertainty lies in the speed of integration of people forcibly displaced from the labor market in Nagorno-Karabakh into Armenia. Additionally, there has been a decline in labor migration from Armenia to Russia, which could affect the domestic labor market. Notably, the number of non-residents employed in Armenia has slightly decreased in recent months.
Amid this ambiguous labor market situation, inflation in Armenia remains relatively stable. In the second quarter of 2024, a weak inflationary environment persisted, driven by global deflationary pressures and the stabilization of aggregate demand. In August 2024, the 12-month inflation rate stood at 1.3%, below the Central Bank's target. This figure has been below the target level since April 2023.
A more detailed analysis shows that inflation for non-exportable goods, which primarily reflects price behavior driven by domestic demand, remained relatively stable at 2.4% year-on-year in July. Meanwhile, inflation in services linked to external demand continued to decline, reflecting trends of slowing demand growth.
Experts from the Central Bank of Armenia stress that the current situation requires careful monitoring and thorough analysis. Special attention is being paid to potential future scenarios, considering the uncertainties in the labor market and their potential impact on the country's overall economy.
