Azerbaijan will fall into recession and its two South Caucasus neighbours, Armenia and Georgia, will lose almost all of their previously projected economic growth because of the crisis brought about by the coronavirus (COVID-19) pandemic, the World Bank said late on April 8 in an economic update. However, it also projected economic recoveries for each country in 2021.
 

Oil and gas-rich Azerbaijan, also suffering because of the collapse in oil prices caused by OPEC+ countries failing to agree production cuts to address shrunken demand triggered by the worldwide virus outbreak, is expected by the World Bank to contract by 0.2% in 2020 but rebound to 2.2% next year. The international financial institute last October forecast 2020 GDP growth of 2.3% for Azerbaijan.

“Non-energy growth [in Azerbaijan] will be affected by deteriorating consumer confidence and plummeting receipts from tourism, trade, and hospitality, but partially cushioned by recent government support policies,” the World Bank said.

It added: “The COVID-19 pandemic and oil price slump have clouded Azerbaijan’s economic outlook. With oil prices hovering at around $30/barrel, GDP growth is projected to contract in 2020 and rebound in 2021–22, as the shocks dissipate… The consolidated government budget is projected to record a deficit in 2020, as oil prices are below the budget break-even price of about $48/barrel. SOFAZ [State Oil Fund of Azerbaijan] assets will finance the deficit. In the medium term, assuming the fiscal rule holds, the fiscal deficit would narrow gradually.”

1.7% “optimistic scenario” for Armenia

The new World Bank estimate for 2020 economic output in impoverished Armenia is 1.7%, provided a recovery from the COVID-19 shock starts in mid-summer, versus the 5.1% it previously anticipated. The newly projected rate is a quarter of the average rate Armenia has seen over the past three years, the bank said, adding that it was an optimistic scenario. It also predicted that Armenia’s economy would expand by 4.5% in 2021.
 

It said it anticipated that the deceleration in Armenia would be cushioned by fiscal expansion. That would comprise of increased current spending, particularly in health and social spending, as well as support provided to businesses and raised public investment.

“A dollarized economy [in Armenia] and narrow export base add to the challenges of managing the shock. A recovery is expected beyond 2020 as the shock dissipates. Weak growth could slow or reverse gains in poverty reduction,” the update said.

‘Georgia seen eking out 0.1%’

Looking at Georgia, the World Bank’s latest analysis shows it only eking out GDP growth of 0.1% in 2020 (compared to the 5% the bank forecast last October) before achieving a rebound of around 4% in 2021.
 

The update said: “Growth accelerated to 5.1 percent in 2019 driven by consumption and exports. However, the COVID-19 pandemic clouded the outlook with economic activity projected to stagnate in 2020, while a prolonged outbreak, in which GDP could contract by around 2 percent, could easily unfold. A dollarized economy adds to the challenges of managing the shock. The poverty rate declined in 2018 and 2019 but gains could be reversed as the outlook dims.”

The World Bank said the Georgian economy would be heavily impacted by transport restrictions affecting the travel and tourism sectors. COVID-19 containment measures would dampen domestic demand, it added, while a fiscal stimulus of around 2% of GDP would partly offset the growth deterioration.

It said the deceleration was expected to be cushioned by fiscal expansion, both by increased current spending, particularly in health and social spending, as well as support to businesses and higher public investment.

The update also noted: “Beyond the COVID-19 pandemic, substantial quasi-fiscal risks emanate from Georgia’s state-owned enterprises and power purchasing agreements which provide state guarantees for the purchase of excess electricity from power generators, however, the institutional and regulatory capacity to deal with fiscal risks is increasing. In addition, the repayment of the Eurobond in 2021 creates some refinancing risk in case markets tighten, partially mitigated by the availability of concessional finance from international financial institutions.”