TOPIC OF THE WEEK: CCA Quarterly Outlook-3Q24

CAUCASUS / CENTRAL ASIA - Report 20 Sep 2024 by Ivan Tchakarov

We provide the quarterly update of our country “cheat sheets”. The evolution of macroeconomic activity has been strong in 2024, and we have upgraded our full-year CCA GDP growth to 6.3 percent (5.8 percent previously) vs the 6.2 percent posted last year. This has been chiefly due to better performance by Georgia and Tajikistan, while Armenia, Azerbaijan and Uzbekistan have also continued to post robust results. This improving performance has been predominantly driven by consumer spending as high nominal wage growth has been matched by still subdued inflation to generate strong real wage growth. 

Inflation remains subdued chiefly on still powerful base effects, mainly food, but some acceleration of price growth has become visible in the second and third quarter of the year. Nevertheless, we see inflation running within CPI targets this year for all countries except Uzbekistan, which has recently introduced utility tariff hikes. We expect all CCA economies to approach their respective CPI targets next year, with the three South Caucasus countries plus Tajikistan from below and Uzbekistan from above. 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 some of the countries.

The political autumn promises to be hot, with the Georgia Oct Parliament Elections drawing the key focus. Public protests are likely to follow the expected Georgian Dream win at the ballot as 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 progress in delimiting/demarcating certain portions of the border. A formal peace treaty is still possible this year, even at the COP29 meeting in Nov in Baku, although there are still fundamental bottlenecks separating the two countries. The Oct Parliamentary Elections in Uzbekistan should be much less exciting than those in Georgia.

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