In mid-October 2025, Armenia’s Statistical Committee released figures that at first glance appeared almost sensational. Economic activity over nine months grew by 7.6% – a level many European economies can only dream of today. Yet just days later, Prime Minister Nikol Pashinyan succinctly captured the core contradiction of this growth: “Despite the high rates of economic growth, poverty in our country is not declining significantly”.

Indeed, the poverty rate has remained largely unchanged in recent years, hovering around 23%. The economy is expanding, but for a large segment of society this growth has not translated into a tangible improvement in living standards. At the same time, inflationary pressure has intensified. In October 2025, annual inflation reached 3.7%, exceeding the Central Bank’s target of 3% and standing in sharp contrast to the near-zero figures recorded in 2024. The most pronounced price increases were recorded in food, education services, as well as alcohol and tobacco.

Against this backdrop, the condition of the real sector is particularly striking. Over the same nine-month period, industrial output fell by 14.1%, trade declined by 37.1%, and exports dropped by nearly 49%. Total foreign trade turnover decreased from $30 billion to $16.5 billion. This raises a logical question: how can an economy grow when its key production and trade indicators are in decline?

The answer lies in the structure of that growth. The main contribution came from the services sector, which expanded by more than 10%, and from construction, where growth in certain months approached 25%. These segments offset the downturn in industry and produced a positive overall statistical picture. At the same time, such dynamics make the economy increasingly one-sided and vulnerable to external shocks.

Associate Professor of Economics Agasi Tavadyan does not hide his concern. According to him, “all the engines of growth over the past year and a half were external and temporary – Russian relocants, gold re-exports, financial inflows. These engines are running out. And we are seeing the real face of the Armenian economy”. His assessment highlights the core issue: growth has been driven largely by a unique geopolitical moment rather than by deep modernization of production.

By October 2025, economic activity at 7.6% had significantly exceeded forecasts by international institutions such as the IMF and the World Bank. For the government, this became a source of optimism. Yet behind these figures lies a more complex reality: a decline in manufacturing, a sharp contraction in foreign trade, and a weakening export base.

Tavadyan puts it bluntly: “We are returning to reality. Without artificial re-export schemes and without the inflow of relocants, the Armenian economy shows its true face”. He also points to institutional constraints on growth: “When banks maintain high interest rates, it is impossible to develop real industry and agriculture. All money flows into trade and services – where returns are fast”.

Against this backdrop, Armenian society continues to harbor high expectations of the Western vector. There is hope that the EU and the United States could become alternative markets and sources of investment. However, current figures tell a different story. In 2024, the European Union purchased $2.3 billion worth of Armenian goods, while the United States accounted for only $410 million. By comparison, trade with Russia exceeded $11.7 billion. Moreover, in 2025 the United States introduced customs tariffs on Armenian products, further narrowing export opportunities.

Political dialogue with the EU has also been accompanied by uncomfortable signals. In December 2024, EU foreign policy chief Kaja Kallas noted that the level of alignment between Armenia’s foreign policy positions and those of the EU stood at just 37%. Brussels expects greater synchronization, including participation in sanctions against Russia. For Armenia, however, this would mean a blow to a significant share of its own trade.

Western financial support, while important, remains limited in scale. EU grants and U.S. assistance amount to tens of millions of dollars per year – meaningful for individual programs, but insufficient for a structural transformation of the economy. Promises of strategic partnership sound compelling, yet without a free trade area and large-scale investments they have not translated into a qualitatively new economic reality.

In this context, the Firebird project involving Dell and NVIDIA stands out in particular – the first major U.S. technological investment in Armenia. The potential $500 million could lay the foundation for the development of a high-tech segment and set an important precedent. Still, even this project remains the exception rather than the rule.

The experience of neighboring Georgia shows that a political orientation toward the West does not negate objective economic logic. Despite the absence of diplomatic relations with Russia, Georgia’s economy remains closely tied to the Russian market. This example underscores a broader reality: for small post-Soviet economies, access to EU and U.S. markets is constrained less by politics than by logistics, regulatory standards, and the scale of production.

Today, Armenia finds itself at a delicate point of balance. On the one hand, there are public expectations of European living standards and trust in the EU. On the other, there is deep integration into the Eurasian economic space, which provides markets, jobs, and a degree of stability. The economy has demonstrated resilience and an ability to adapt, particularly in IT, tourism, and construction. Yet the main challenge remains unchanged: to turn quantitative growth into qualitative development, without losing the real sector and without substituting long-term strategy with temporary effects

Journalist,

Marine Kharatyan

#ARMENIA

#ANALYSIS

26.12.2025 02:31