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Caucasus Q1 2015

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  • Caucasus Q1 2015

    CAUCASUS Q1 2015

    Business Monitor International; Fitch Group Co.

    Caucasus Business Forecast Report
    October 30, 2014 Thursday

    Core Views

    Despite a reduction in political tensions across the South Caucasus
    in H214 we still highlight potential conflict between Armenia and
    Azerbaijan over the disputed Nagorno-Karabakh region, as well as
    the possibility of a deterioration in Russo-Georgian relations as a
    significant threat to social and economic stability in the region.

    The Armenian economy is likely to receive a short-term boost from
    its accession to the Eurasian Economic Union (EEU) in January 2015.

    Membership of the EEU will facilitate trade and investment flows from
    Armenia's primary export destination and source of FDI, Russia.

    Nevertheless, in the long term we believe EEU membership will hold
    back Armenia's economic growth potential as the economy remains
    reliant on Russian demand.

    Georgian real GDP growth will remain relatively robust over the
    coming quarters as the finalising of an Association Agreement and
    Deep and Comprehensive Free Trade Agreement opens up the EU market
    for exporters. There is the risk that less inhibited trade with the
    EU sees the increase in imports outweigh the rise in exports, but in
    the long term we hold to our view that deeper integration with the
    EU will benefit the Georgian economy as European FDI flows increase.

    While Georgia has signed a number of agreements with the EU, fostering
    closer links between Tbilisi and Brussels, and Armenia is on course to
    join the EEU, tying the country into Russia's sphere of influence, we
    believe Azerbaijan will continue to tread a fine line between siding
    with either Russia or the EU. Azerbaijan's economic interests can
    be better served by increasing trade and energy routes with the EU,
    while maintaining good relations with Moscow will likely assist in
    keeping the autocratic regime of President Ilham Aliyev in power.

    Major Forecast Changes

    We have revised up our forecasts for real GDP growth in Georgia to
    4.8% in 2015 and 4.6% in 2016, from 4.2% and 4.0% previously. The
    deals signed with the EU will assist in boosting exports and fixed
    investment, while the threat of a trade embargo imposed by Russia on
    Georgia has reduced significantly.

    Key Risks To Outlook

    Given the close links between the Armenian economy and Russia the
    selloff in the Russian rouble, the collapse in global oil prices and
    the ongoing Western sanctions on Russia will all serve to constrain
    Russian real GDP growth. This in turn will see Armenian growth
    remain subdued as demand for exports remains stagnant. However, an
    alleviation of the sanctions, a sustained rise in oil prices and a
    strengthening of the rouble could all see Russian growth restored,
    which in turn would provide a notable boost to the Armenian economy,
    as exports rise and remittance flows from Russia increase.



    From: Emil Lazarian | Ararat NewsPress
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