2026 CCA Outlook: The spotlight sharpens—and it lands on Yerevan
Without a doubt, the key political economy event in the Caucasus and Central Asia next year is the upcoming Parliamentary vote in Armenia next Jun. The elections are, of course, interesting not only for the academics and analytics of them, but also for their geo-economic and geopolitical implications. Stockholders and capital markets would undoubtedly prefer to see Pashinyan and his Civil Contract emerge victorious given the opposition's less-than-enthusiastic embrace of the ongoing process of political normalization with Azerbaijan. Pashinyan's loss, in contrast, would carry significant risks for regional security that would inevitably trickle down to generate adverse macro and micro implications.
Assuming that my baseline scenario of Pashinyan's constrained win materializes, I see a reasonably robust, if lower, GDP growth for the region (Armenia, Azerbaijan, Georgia, Uzbekistan, Tajikistan and Kyrgyzstan) in 2026. I forecast real (average) GDP growth for the region moderating from an estimated 6.0% in 2025 to 5.5% in 2026, which would still be slightly above the previous decade's (2016-2025) average of 5.2%. Domestic demand will provide the key fillip to economic momentum for most economies as still generally subdued, and modestly downward-trending inflation, will continue to imply reasonably strong growth in real wages against a background of broadly constant nominal policy rates.
There will, of course, be divergence across individual players, with Kyrgyzstan leading the pack next year with 8.5% GDP growth. Tajikistan comes in at a close second, and Uzbekistan confidently third as these Central Asian economies continue to benefit elevated prices of gold and other metals. This will also underpin economic performance on the external side. We expect Georgia to experience the sharpest slowdown due to the still quite high base and the ongoing political crisis. I anticipate Armenia also to post decent growth, although, again, this will be critically dependent on how the mid-year national vote turns out. Azerbaijan may still be struggling in terms of growth given less favorable oil and gas prices.
Inflation reached a bottom in 2024, but accelerated in 2025 chiefly on still powerful base effects, mainly food, although strong growth pushed up nonfood and services prices as well. I now expect average inflation to head down somewhat from an estimated 5.0% in 2025 to 4.5% in 2026 as base effects now start working in an opposite direction and given a slightly decelerating pace of economic activity. I also anticipate that all CCA economies will be within their CPI target ranges next year. Uzbekistan is still the outlier here, although inflation has now started to fall on the back of dissipating effects of recent utility tariff hikes and tight monetary conditions. Monetary policy easing has already done most of the lifting, although there could be scope for some minor residual cuts in some places.
A particularly interesting question will be whether appreciation pressures on regional currencies will continue. This relatively unusual situation from a historical perspective has created a rich environment for investors to reap significant benefits from investing in local instruments, with Uzbekistan being the prime example. I have consistently argued that, beyond the myriad relevant macro stats, this phenomenon is primarily a RUB-centered story. I stick to this view and see a more material turnaround (in CCA currency strength) in the case of the RUB taking a steadier weakening trend vs the US$. Whether this may happen on a sustainable basis in 2026 is a story that goes beyond the topic of a CCA Year-Ahead, but some recent developments in Russia, including the CBR's decision to remove limits on household FX transfers abroad, signal a policy-related desire in Russia for a softer currency. This will, as usual, will not be taken lightly by CCA currencies.
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