Economic Expansion to Decrease in Caucasus and Central Asia - World Bank Forecast
China's faltering economy could cast a long shadow on the economies of the Caucasus and Central Asia over the next two years, according to a World Bank forecast.
The World Bank's economic outlook for 2024-25 warns of "multiple headwinds" for the entire region, including China's sluggish recovery and shrinking commodity prices. The Bank expects investment growth to weaken, especially in countries where progress on structural reforms is slow.
In the Caucasus, Azerbaijan could see a modest growth spurt thanks to growing demand for its energy exports in Europe. However, Georgia and Armenia are predicted to experience a downturn in economic performance, due to increased geopolitical risks, decreasing exports, and the loss of momentum from the influx of migrants and capital from Russia.
With parliamentary elections scheduled for October, a sluggish economy could put pressure on Georgia's ruling Georgian Dream coalition, as voters focus on policies that critics claim undermine the country's prospects for joining the European Union. A poll found that most Georgian citizens are in favor of EU membership, seeing it as a stepping stone to strong economic growth. However, Georgian Dream's recent re-introduction of legislation potentially curtailing basic rights threatens to derail the country's EU bid.
According to Alex Melikishvili, a country risk expert, the Georgian government will likely use generous government spending and strong sovereign reserves to court favor with voters leading up to the elections.
Central Asia's economic landscape paints a diverse picture. Kyrgyzstan and Tajikistan are facing sharp decreases in growth rates, while Kazakhstan and Uzbekistan are expected to see marginal increases. The World Bank does not have sufficient data to predict Turkmenistan's economic prospects. These countries are especially vulnerable to geopolitical factors related to Russia, as a downturn in Russia can significantly impact labor migration, a primary source of income for many Kyrgyz and Tajik families. Other risks include rising food prices and global warming.
Signs of economic challenges are already tough for the region to handle. The Russian war in Ukraine has disrupted supply chains and driven up import prices for Kyrgyzstan. In the Caucasus, Russians who fled conscription in their homeland in 2022 and relocated to cities like Tbilisi and Yerevan are now beginning to move on to other countries, taking their savings with them.
Even relatively prosperous nations like Kazakhstan have reasons for concern. The World Bank report states that invigorating economic growth will require the government to reduce its involvement in the private sector and strengthen human capital and policies supporting decarbonization.
Melikishvili notes that factors outside the World Bank's projections, such as China-EU relations, the sanctions environment, the situation in the Red Sea, and the growing Iran-Israel conflict in the Middle East, may have a greater impact on trade trends.
China has sent mixed messages to the global market recently, sometimes appearing on the verge of economic collapse and at other times surpassing expectations. Some experts claim China is applying command-style measures to address strategic economic issues, using large amounts of state funds for short-term gains without addressing underlying problems. While such an approach can postpone problems temporarily, it cannot solve them in the long run.
Central Asian nations will undoubtedly keep an eye on signals coming from China. Since 2022, interests in the development of the Middle Corridor, an East-West trade route, have resurfaced among the region's countries. Diversification through the Middle Corridor can help insulate against problems with the Chinese or Russian economies, which have historically been important to Central Asian nations. However, even if the Middle Corridor offers some protection, a struggling economy in China can still generate shockwaves that ripple across the route and reach Europe.
In conclusion, China's economic struggles could have profound consequences for the economies of the Caucasus and Central Asia, with varying effects depending on each country's specific economic structures and dependencies.
- Despite China's potential impact, economies in Central Asia show mixed prospects, with Kyrgyzstan and Tajikistan predicted to experience declines, while Kazakhstan and Uzbekistan may see modest growth.
- In the realm of general news, the ongoing Iran-Israel conflict and evolving China-EU relations could exert significant influence on trade trends in Central Asia.
- Uncertainties in China's economy, particularly its unpredictable policy decisions, raise concerns about food prices and the downstream effects on Central Asian economies, as they are historically dependent on both China and Russia.
