TOPIC OF THE WEEK: CCA Quarterly Outlook
We provide the quarterly update of our country “cheat sheets”. Since we published our 2024 Outlook, which we dubbed “Less growth, less risk”, the evolution of macroeconomic activity has been supportive of the idea of a slightly moderating pace of activity. Still, the start of the year has been strong enough, in particular in Armenia, Georgia and Tajikistan, for us to upgrade our 2024 CCA GDP growth to 5.8 percent (5.1 percent previously) vs the 6.3 percent posted last year. We continue to anticipate the strongest showing in Tajikistan and the weakest in Azerbaijan, even though the latter will be the only country to see an acceleration of GDP growth on a low base and higher expenditures on the newly acquired territories.
Inflation remains subdued chiefly on still powerful base effects, mainly food, but some acceleration of price growth has become visible in the second quarter of the year. Nevertheless, we see inflation running within the CPI targets this year for all countries except Uzbekistan, which has recently introduced utility tariff hikes. Monetary policy easing has already done most of the lifting, although there could be scope for some minor residual cutting through the end of the year in all countries except Uzbekistan.
The second pillar of the outlook, i.e., “less risk”, has turned out be more controversial, in particular given the ups and downs of the peace process between Armenia and Azerbaijan and the upcoming Oct parliamentary elections in Georgia. We still hold to our baseline view that no further military escalation between Yerevan and Baku will take place as both parties have recently made progress in delimiting/demarcating certain portions of the border. A formal peace treaty is still possible this year. At the same time, Armenia’s recent sharp changes in foreign policy have weakened its negotiating position, which Azerbaijan has been all too happy to exploit by presenting fresh demands for Yerevan to meet. While we had originally felt more confident about the story line in Georgia, where Georgian Dream was in the driver's seat to do very well in the elections, the passing of the so-called "foreign agents" bill has injected an unwelcome instability into the political process that may lead to a less predictable outcome in the Oct elections.
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