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World Bank predicting economic slowdown for Caucasus & Central Asia [1]
['Allan Mustard']
Date: 2025-05
Economic growth rates for both the South Caucasus and Central Asia are expected to dip slightly over the next two years. (Photo: gov.kz)
Economic activity across the South Caucasus and Central Asia is projected to stagnate over the next two years, as uncertainty envelops global markets, according to World Bank experts.
The bank’s latest Europe and Central Asia Economic Update identifies the most serious challenges facing policymakers in the regions as weaker-than-expected trade, unpredictable policy shifts and decreasing prices for commodities. The report also cautions that inflationary pressure may continue to arise from rising food costs, tight labor markets and “potential supply-side shocks.”
“Risks are heavily tilted to the downside,” according to the report. “Heightened global policy uncertainty, trade fragmentation, increased trade barriers, geopolitical tensions, and financial market volatility dominate.”
Growth rates for both the South Caucasus and Central Asia are expected to dip slightly over the next two years. In the Caucasus, Georgia is projected to experience the biggest dip in economic performance, although its predicted 5 percent growth rate in 2026 would still be higher than other regional states. The bank believes Armenia will experience slight growth with the predicted 4 percent growth rate in 2025 rising to 4.2 percent the following year. Azerbaijan, meanwhile, will experience a decline, going from a 2.6 growth rate this year to 2.4 percent in 2026.
Kyrgyzstan and Tajikistan will experience Central Asia’s most significant declines in economic growth over the next two years, while Kazakhstan’s slowdown will be less pronounced, according to World Bank estimates. Uzbekistan’s growth rate is expected to remain level during 2025-26 at 5.9 percent.
The onset of policy uncertainty, underscored by the brewing tariff-driven trade war among global economic powers, is undermining efforts by Central Asian states to promote trade via the lowering of inter-state trade barriers. Kyrgyzstan, Tajikistan and Uzbekistan over the past year have taken steps to settle border disputes and simplify customs procedures, but the payoff from such moves in terms of increased trade flows may be deferred by the imposition of tariffs.
The World Bank recommends the best way for middle income countries, including those in the South Caucasus and Central Asia, to manage existing economic risks is to accelerate structural reforms that stimulate private enterprise and entrepreneurship.
“Countries would benefit from boosting structural reforms at home, especially reforms to … foster buoyant private sector development, innovation, and competition,” the report states. “Across the region, successful economic transitions have been driven by private sector transformation, with policy makers shifting from protecting incumbents to promoting business dynamism and rewarding merit.”
The report highlights a “surge” in household borrowing in the Caucasus and Central Asia as a trend with potentially disconcerting ramifications for growth. The bank singles out Kyrgyzstan, where in early 2025, the “annual expansion of consumer loans exceeded 85 percent in nominal terms, making them the largest component of banks’ credit portfolios.”
The bank report does not go into detail about what all that borrowing is being used for, or what the terms of the household loans are. Other economic data suggests that household incomes in Central Asia are having trouble keeping pace with inflation, raising the possibility that citizens are borrowing to meet monthly living expenses. If that is the case, the spike in Kyrgyz household borrowing could be a potential red flag of a default crisis down the road.
The report additionally highlights that despite tightening restrictions and increasing harassment of Central Asian migrants in Russia, remittances from guest workers to family members back in Kyrgyzstan and Uzbekistan experienced a spike in 2024 compared with figures for the previous year. Uzbek labor migrants sent almost $15 billion back home in 2024, most of the money coming from Russia. Meanwhile, Georgia, a country that grew geopolitically closer to the Kremlin over the past two years, has seen a significant decline in remittance totals over the same period.
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https://eurasianet.org/world-bank-predicting-economic-slowdown-for-caucasus-central-asia
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