The economies of the three South Caucasus states, Armenia, Azerbaijan and Georgia, are expected to grow robustly for the next three years, says the World Bank’s latest Global Economic Prospects report, which has lifted the institution's forecasts issued in January for all three countries.
The upward revisions are most comprehensive for Azerbaijan, whose once booming economy is recovering from a contraction caused by low oil prices.
It grew by an estimated 0.1% in 2017 and is expected to accelerate to 1.8% this year and 3.8% in 2019, before moderating to a still healthy 3.2% in 2020. The figures represent upward revisions of 0.9pp, 2.3pp and 0.6pp, respectively, compared to the January forecasts.
“Azerbaijan is projected to emerge from two years of disappointing growth, mainly in response to fiscal stimulus measures supported by higher oil prices and expanded natural gas production,” the development bank commented.
For Armenia, the World Bank confirmed stunning 7.5% growth in 2017, as reported by the finance ministry recently, but expects it to be followed by steadier and more modest expansions of 4.1% this year and 4.0% in each of the following two years. The bank raised its projection for 2018 by 0.3pp but left its forecasts for the next two years unchanged.
Georgia’s economy, meanwhile, will be the fastest growing of the three. It is expected to follow last year’s 5.0% expansion with growth rates of 4.5%, 4.8% and 5.0% in 2018-2020. The bank has raised its forecasts for 2018 and 2019 by 0.3pp and 0.1pp, respectively.
However, the World Bank warns that risks in the Europe and Central Asia region are tilted to the downside. “A disorderly tightening of global financial conditions could trigger a sharp deterioration of external financing conditions and lead to a reversal of capital flows and weakening economic activity,” the report says.
In addition, “since the region is open to trade and is integrated into global supply chains, it would be vulnerable to a rise in global protectionism.”
For the region’s large energy exporting countries such as Kazakhstan, Russia, and Uzbekistan, it also notes that a weaker than expected energy price outlook would undermine their recoveries, while this could also generate negative spillovers to energy importers including Armenia and Georgia.