Page 14 - GEORptJun18

South Caucasus to post strong growth in 2018, ADB says in latest report
Azerbaijani currency took a hit amidst the oil and gas recession, as the central bank dropped its peg to the dollar in 2015, which brought about a dramatic, 50% depreciation of the currency and double-digit inflation.
Meanwhile, the Georgian economy is expected to stay the course, with GDP growth projected at 4.5% in 2018 and 4.8% in 2019, following a 4.8% growth rate in 2017. Georgia has proven to have the most resilient economy in recent years out of the three countries in the South Caucasus, as the small country has moved to diversify its commercial partners and economy, has forged several free trade agreements, and has successfully attracted foreign and domestic investment in real estate, renewable energy, financial services, hospitality, and infrastructure projects.
Lastly, Armenia's growth prospects are a modest 3.4% for 2018 and 3.5% in 2019 according to the IMF, which is too little to improve living standards in a lower-middle income country where a third of the population lives in poverty. Furthermore, the IMF expects that the unemployment rate, which officially stands at 18.9% but is believed to be much higher, will remain flat in the next three years.
The three countries that make up the South Caucasus are expected to perform relatively well economically, according to the Asian Development Bank (ADB)'s latest economic outlook published on April 11.
Armenia
The Armenian economy is projected to grow by 4% in 2018 and 4.2% in 2019 on the back of strong growth in industry and services. ADB cites the Armenian government's official GDP growth rate in 2017, 7.5%, (many observers, including ratings agencies, doubt that the figure was actually as high), noting that a strong recovery in consumption and industry supported high levels of economic growth. Construction, however, only grew by 3.1% y/y in 2017, following four years of contraction, and is expected to continue to lag behind the rest of the economy in the next two years.
For 2018, ADB projects that services will expand by 5% to 5.5%, driven primarily by the expansion of finance, transportation, telecommunications, and consumption, and that industrial growth will moderate somewhat after double-digit growth in 2017.
While inflation was low at 1% in 2017 and Armenia has suffered from depressionary pressures in recent years, sustained economic growth is expected to bring inflation and, as a result, a tighter monetary policy in 2018.
The Armenian government's efforts toward fiscal consolidation will continue in 2018, according to the report, supported by tax changes that took effect in January to increase taxes and simplify the tax regime for companies. However, higher inflation, which is expected to reach 2.7% y/y in 2018, coupled with higher taxes will exacerbate the impact of poverty on Armenians, undoing the progress that the country has achieved in fighting poverty in the last three years.
Azerbaijan
Neighbouring Azerbaijan, in the meantime, will continue its economic recovery, and is projected to grow by 1.7% in 2018 and 2% in 2019. The
14 GEORGIA Country Report June 2018 www.intellinews.com