EBRD expects growth in the Caucasus

Growth outlook depends on regional economic environment, reduction of geopolitical risks and country-specific factors

Baku. 6 November. REPORT.AZ/ Countries in the Caucasus continue to be influenced by the regional economic and security challengesbut are expected to sustain growth in 2015-16 according to the EBRD’s latest economic outlook, Report informs.

In January-September of 2015, the economy of Azerbaijan expanded by 3.7 per cent year-on-year, with non-oil GDP expanding by 6.4 per cent. Amid low oil prices, Azerbaijan’s foreign currency reserves (in convertible currencies) decreased from US$ 13.2 billion in November 2014 to approximately US$ 5.3 billion in August 2015.Azerbaijan’s overall liquidity position remained strong, backed by the sizable assets of the State Oil Fund. In February 2015, after almost two decades of stable exchange rate, the central bank of Azerbaijan devalued the manat against the US dollar by 25 per cent. This helped contain pressure on the fiscal and external balance, but led to balance sheet concerns in the banking sector. The EBRD upgraded Azerbaijan’s GDP growth forecast to +3 per cent in 2015 and +2.5 per cent in 2016.

In Georgia, various factors, including the reduction of remittances because of the economic downturn in Russia, a sharp slowdown in regional trade and the domestic political uncertainty, affected domestic consumer and business confidence and growth.The Georgian lari has depreciated by more than 20 per cent against the US dollar since the beginning of 2015. The EBRD expects that growth in Georgia will moderateto +2.5 per cent in 2015and keeps its modest growth forecast of +2.6 per cent for 2016.

In general, the outlook for economies where the EBRD invests remains split, with countries further to the east weighed down by the Russian recession and weak oil and other commodity prices.

Regions further to the west are benefitting from a eurozone upturn and the impact of accommodating European Central Bank monetary policies.

According to the EBRD’s latest Regional Economic Prospects report, growth in the region as a whole is expected to slow to just 0.2 per cent this year, from 1.8 per cent in 2014. Moderate growth of 1.6 per cent is expected in 2016. These forecasts are unchanged from May, but they mask regional differences/

The Ukrainian economy, for example, is now expected to contract by 11.5 per cent this year, a deterioration of four percentage points since the May outlook.

Hans Peter Lankes, the EBRD’s acting chief economist, said, “We may be looking now for something of an upturn in 2016 after five consecutive years of slowdown. But there are significant risks on the downside.”

The report cites as risks a sharper than expected slowdown in China, a stronger-than-expected increase in US interest rates, political instability and geopolitical tensions and an uneven implementation of the bailout programme in Greece.

The report notes that the refugee crisis that intensified sharply in 2015 is affecting the economies of a number of countries.

Among “frontline” countries, Turkey is estimated to be hosting more than two million refugees, while in Jordan they account for almost one-fifth of the population. This massive influx has in some cases strained public services, government finances and labour markets.

Transit countries in south eastern Europe which have provided medical and social care, food, water, and accommodation for refugees are facing logistical and fiscal challenges.

Broken down by region, the EBRD report sees a relatively strong outlook in central Europe and the Baltics, supported by Eurozone quantitative easing (QE) and lower commodity prices which are providing scope for easier monetary conditions in the region.

“The expected average growth rate of around 3 per cent in 2015 and 2016 provides for continued, albeit slow, convergence of income levels with those of advanced economies,” the report says.

Economies in south eastern Europe are also benefitting from QE in Europe, the weaker euro and lower oil prices. Growth is expected generally to pick up in 2015 and be maintained in 2016. Greece’s economy, however, is expected to contract both this year and next.

The 2015 economic outlook in eastern Europe and the Caucasus has worsened, affected by spill-overs from the recession in Russia and due to deeper recession in Ukraine and Belarus.

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