TOPIC OF THE WEEK: How did Armenia and Georgia manage to grow their economies by a fifth in 2022-2023?

CAUCASUS / CENTRAL ASIA - Report 11 Oct 2024 by Ivan Tchakarov

We have on a number of occasions underlined the strong growth performance that Armenia and Georgia have enjoyed over the last couple of years. This has helped boost their standing in the GDP-per-capita ranking in the CIS space. Both countries have delivered an impressive 20% real GDP growth over the course of just two years, 2022 and 2023.

We have now attempted to dig deeper and account for this robust growth performance by looking at individual industries and their rates of expansion and contribution to overall GDP growth over that period. We find that only three industries account for about two-thirds of that 20% GDP growth over 2022 and 2023, with trade, IT, and construction contributing 67% to GDP growth in Armenia and 72% to GDP growth in Georgia. IT benefited from the influx of IT specialists from Russia while much expanded trade with Moscow has served as a roundabout way to supply Russia with much needed sanctioned goods. Still, while Armenia has directly benefited from trade with Russia, Georgia has seen indirect additions to GDP growth from trade-related services that have been employed to deliver goods from Armenia via Georgia to Russia.

However, data from the first half of this year has started to show a sizable divergence in economic performance as, currently, the pace of economic growth in Georgia is double that of Armenia. The more balanced foreign policy approach of Tbilisi has been delivering for the economy, with, for example, IT still contributing to GDP growth in Georgia, while subtracting from growth in Armenia, which has turned much less Russia friendly in recent months. Equally, education, health and public administration have added about 2pp to GDP growth in Georgia both in 1Q24 and 2Q24, while they have subtracted by about a half pp from GDP growth in Armenia over the same time frame. This could be related to more targeted fiscal spending in the run-up to the Oct 26th Parliamentary Elections in Georgia.

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