Page 14 - GEORptMay18

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 Azerbaijani economy returned to growth in 2017, expanding by 0.1% y/y, following a sharp contraction of 3.1% in 2016.
Despite the fact that Azerbaijan is expected to begin gas exports from the giant Shah Deniz II field through a new network of pipelines to Turkey this year, its industry will nevertheless contract by 0.5%. In 2019, as the new gas export scheme becomes fully operational, export revenues will support industrial growth to the tune of 3%, the ADB forecasts.
The multilateral lender expects that higher incomes and a stabilised currency - the Azerbaijani manat has lost half of its value against he dollar since 2015 - will lead to a rise in private consumption. This trend will be accompanied by higher government spending on infrastructure to help meet demand for housing and higher exports.
Inflation will come down from the double digits, where it has been since 2015, to 7% in 2018 and 2019, according to the report, though monetary policy will remain tight in the next two years in order to curb inflation.
Georgia
Boasting the best performing economy in the South Caucasus in recent years, Georgia will continue to experience strong economic growth to the tune of 4.5% in 2018 and 4.7% in 2019, the ADB projects.
Industrial growth is forecast to reach 5.4% in 2018 and 5.8% in 2019, and will drive growth, together with a rebound in utilities and a strong performance in the construction sector. Agriculture, in the meantime, will expand only by 2.1% in 2018 and 3.7% in 2019 thanks to government support.
Meanwhile, pensions and capital markets reforms planned for the second half of 2018 will support growth by boosting savings and investment, as will anticipated reforms to upgrade infrastructure, improve public-private
14 GEORGIA Country Report May 2018 www.intellinews.com