The economies of Armenia, Azerbaijan and Georgia 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.
Azerbaijan is capitalising on high levels of oil and gas revenues, as a result of elevated prices and increased export revenues, but also on the strong performance of its non-energy sector.
Meanwhile, 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.
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 Georgia, robust growth of 10.3 per cent is supported by a pickup in tourism, which has almost reached pre-pandemic levels, and by an increase in money transfers (boosted by the temporary inflow of Russian businesses and technology-sector professionals).
These trends have helped to cover Georgia’s trade deficit and supported the appreciation of the lari, leading to an increase in foreign reserves. The growth is expected to continue, albeit at a slower pace of 8 per cent in 2022, which remains significantly higher than the 3 per cent growth previously predicted.
For next year, the report expects this trend to moderate further to 5 per cent, in line with the previous forecast.
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.
Read the full article, here.
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