The economies of Armenia, Georgia and Azerbaijan are enjoying some of their highest growth rates in years, the European Bank for Reconstruction and Development (EBRD) reports in its latest Regional Economic Prospects (REP) today.
Armenia and Georgia are benefiting from an inflow of Russian businesses and information and communication technology (ICT) professionals, boosting the service sectors of these small economies.
However, the robust growth recorded for the region in 2022 will taper off in 2023, highlighting concerns about its medium-term sustainability. The report warns that current growth in the Caucasus is mainly driven by temporary factors that could easily be reversed.
For Georgia the risks are driven by uncertainty and the significant probability of external shocks. In the case of Armenia, these are further amplified by the country’s close ties to an increasingly isolated Russian economy.
In 2022, Georgia’s economy is projected to post growth of 8 per cent, with a slowdown to 5 per cent next year. Similarly, the expected growth of 8 per cent in Armenia’s economy this year is likely to decelerate to 4 per cent in 2023.
During the first half of 2022, inflation in the Caucasus gained momentum due to a new wave of price rises for energy and food. The central banks of all three countries responded by raising their policy rates.
Inflation has now fallen to an average of 10 per cent, which is still high but significantly lower than the average of 16.5 per cent across the EBRD regions as a whole.
In Armenia, the solid recovery seen in 2021 carried strong growth momentum into 2022, with economic growth reaching 13.1 per cent in the period from January to July. As in Georgia, the arrival of many people and firms from Russia led to an increase of 113 per cent in foreign inflows and boosted demand for services.
This has helped Armenia to finance its widening trade deficit. Foreign reserves have also increased by 20 per cent and the exchange rate by 18 per cent. The report forecasts robust growth of 8 per cent in 2022, up from a previous estimate of 4.5 per cent. The slowdown is expected to be less gentle, with a drop to 4 per cent likely in 2023. However, the latest growth estimate for 2023 remains above the earlier projection of 2.5 per cent.
Overall, the EBRD predicts growth of 2.3 per cent in output across its regions in 2022. While this is an upward revision of 1.2 percentage points relative to its May forecast, the Bank warns of subdued growth in 2023, revising projected growth figures down by 1.7 percentage points to 3 per cent.
Projections are subject to further downside risks, should the war on Ukraine escalate.
(Armenian) 
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