TOPIC OF THE WEEK: Growth momentum still robust, if gradually moderating in 3Q23
With Azerbaijan and Uzbekistan the last CCA countries to report final 3Q23 GDP data, we now have a full picture to assess how economic activity has evolved over the first three quarters of 2023. Economic growth in the region has been steadily diminishing from the peak of 11.6 percent YoY in 2Q21 to 5.8 percent YoY in 3Q23. The drivers of growth that fueled above-par performance in 2021 (bounce back from the lows of the 2020 crisis) and 2022 (excess monetary inflows from Russia) lost some of their shine over the course of 2023. The slowdown was complemented by a more challenging global backdrop and policymakers’ desire to err on the side of caution and maintain tight monetary policy despite declining price pressures.
Armenia has been the star performer in the space with Jan-to-Sep GDP growth of 9.5 percent YoY. Tajikistan and Georgia have followed closely, with 8.3 percent and 7.2 percent, respectively. Uzbekistan’s growth has also been steady at 5.6 percent, while Azerbaijan has been the only outlier, having posted a much more modest output expansion of 0.9 percent over the same time period.
The 3Q23 results are fully consistent with our views expressed in the 2024 CCA Outlook as we continue to see the underlying economic and political/geopolitical environment pointing to a modest moderation in regional growth, from 8.2 percent in 2022 to an estimated 6.1 percent in 2023 and a forecast 4.9 percent in 2024.
This anticipated further decline in the pace of economic activity during the year will be relatively uniform, with Armenia experiencing the largest forecast deceleration in GDP growth, including because of the more challenging backdrop in the wake of the defeat in the 3rd Karabakh War. While Armenia may be paying the price of defeat, Azerbaijan will be enjoying the spoils of victory, being the only country in the region where we see some pickup of growth on the back of a more favorable base, a strengthening of real wages and incomes, and supportive monetary and fiscal policies. Georgia’s unique position in the tenser underlying backdrop in the South Caucasus will ensure steady support for the economy as we do not anticipate the election cycle to darken its bright economic prospects. In Uzbekistan, we expect the growth impulse to continue amid accelerating reforms, while Tajikistan should maintain growth momentum as domestic demand remains vigorous.
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