TOPIC OF THE WEEK: 2025 CCA Outlook
2025 will bring lower GDP growth in the Caucasus and Central Asia, although the moderation in the pace of economic activity will be limited. We forecast average GDP growth to ease from an estimated 6.8% in 2024 to 5.5% in 2025, which will still be slightly above the previous decade's (2014-2023) average of 4.8%. Domestic demand will provide the key fillip to economic momentum for most economies as still subdued, if rising inflation, will continue to imply reasonably strong growth in real wages.
There will, of course, be divergence across individual players, with Tajikistan leading the pack next year with 8.0% GDP growth. Uzbekistan comes second because for both Central Asian economies the higher anticipated price of gold will also underpin economic performance on the external side. We expect Georgia to experience the sharpest slowdown due to the very high base and the ongoing political crisis. Armenia and Azerbaijan will post decent, if somewhat slower, growth next year, although there are upside risks as both sides appear ever closer to finally signing a peace deal.
Inflation reached a bottom in 2024, chiefly on still powerful base effects, mainly food, but some acceleration of price growth has gradually become ever more evident across the board. We expect all CCA economies to approach their respective CPI targets in 2025 as price growth rears its head. Uzbekistan is still the outlier here, with inflation running at double-digits due to significant recent increases in utility tariffs. Monetary policy easing has already done most of the lifting, although there could be scope for some minor residual cutting in Armenia.
While 2024 was rich in elections, 2025 promises to be less eventful, although there will be municipal elections in Azerbaijan and Georgia. Politics appears hottest in Georgia, where risks of a disorderly post-election background remain non-trivial. We continue to hold to our baseline view that no further military escalation between Yerevan and Baku will take place as both parties have recently made significant progress in delimiting/demarcating certain portions of the border. A formal peace treaty is possible (and expected) next year, although there are still fundamental bottlenecks separating the two countries.
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