ADB: Economic growth in South Caucasus, Central Asia to accelerate to 5.5% in 2025

The Asian Development Bank (ADB) forecasts economic growth in the South Caucasus and Central Asia (CA) region at 5.5% in 2025 and 4.9% in 2026., Report informs referring to the bank's September update.

In the South Caucasus and Central Asia region, the growth forecast for 2025 has been raised due to improved prospects in Kazakhstan, but lowered for 2026 due to declining hydrocarbon production in Azerbaijan. The subregion is now expected to grow by 5.5% in 2025 (+0.1 percentage points compared to the April estimate), but will slow to 4.9% in 2026 (-0.1 percentage points), the update emphasizes.

ADB notes that the economies of the South Caucasus countries are showing moderate growth.

Growth in Armenia slowed in the first half of 2025, with a decline in industry and a slowdown in the services sector outweighing growth in agriculture and construction. In Azerbaijan, economic activity weakened: growth slowed to 1.5% from 4.3% in the same period of 2024, as the hydrocarbon sector contracted by 3.1% due to a decline in oil and gas production. In Georgia, strong performance in the information technology and construction sectors contributed to growth, as did high levels of private consumption. Increased revenues from tourism and transport supported external sector development and strengthened Georgia's role as a key transit route and tourist destination in the region, the bank notes.

The ADB emphasizes that the South Caucasus countries continued to pursue expansionary fiscal policies aimed at stimulating infrastructure investment. In particular, capital expenditure in Armenia increased sharply: public investment in infrastructure reached 6.7% of GDP, while current expenditure growth slowed. Azerbaijan maintained a budget surplus: rising revenues allowed the Ministry of Finance to build reserves.

The bank notes that high budget revenues ensured Azerbaijan's state budget surplus. Specifically, in the first half of 2025, revenues rose to 31.9% of GDP, driven by higher tax revenues and increased transfers from the State Oil Fund to the budget. Expenditures increased from 26.8% of GDP in 2024 to 27.5% in 2025, reflecting an 11.1% increase in capital expenditures and a 7.5% increase in current expenditures.

As a result, the budget surplus amounted to 4.4% of GDP in January-June 2025.

Azerbaijan maintained a strong external position: in the first quarter of 2025, the current account surplus amounted to $1.1 billion, and foreign exchange reserves rose to $77.6 billion (as of the end of June), equivalent to 105% of GDP and approximately 15 times the public external debt. Central Bank reserves amounted to $11.2 billion and covered almost nine months of goods imports. Resilient revenues from oil and gas trade, despite hydrocarbon price volatility, as well as growth in non-hydrocarbon exports, offset the decline in remittances. However, the balance of services remained in deficit, the update notes.