COVID-19 pandemic pushed the global economy into one of the deepest recessions in 2020 on record. In its January 2021 update, IMF estimates global growth contraction for 2020 at 3.5% and growth rebound at 5.5% is projected in 2021, reflecting expectations on vaccination and additional policy support in some large economies. The countries in the region were hit by double shock in 2020 – one from the pandemic and another from country-specific disruptions. However, COVID-19 related health crisis had different effects on regional economies depending on demographics and share of services sectors in GDP. During the 2nd wave of the virus lockdown measures were strict in Georgia; Azerbaijan and Ukraine also tightened restrictions, while other countries chose softer measures. Currently, active cases per 100,000 persons remain high in Ukraine, followed by Russia, Armenia and Georgia.
• Oil price shock put additional strain on oil-dependent economies of the region – Azerbaijan, Kazakhstan, Russia. However, large reserves, low levels of debt and continued government stimulus have helped oil-exporters to fare well against the pandemic-related disruptions, with GDP contraction ranging between 3.4-4.3% in 2020.
• The military conflict in Nagorno-Karabakh worsened risk sentiments in the region, particularly for Armenia. Although a ceasefire agreement in November 2020 improved the situation, the resulting domestic political turbulence in Armenia caused rating downgrade from Fitch (the only downgrade in the region by Fitch). Economic contraction in Armenia is estimated to be the highest among the regional countries in 2020 at -7.2%.
• Belarus, surprisingly posted one of the lowest economic contractions among the regional peers, estimated at -0.9%. Absence of strict lockdowns and resilient exports helped the country. However, political tensions following the 2020 presidential elections, high share of state-owned entities and possible external sanctions weigh on the economic outlook.
• Turkey (0.6%) and Uzbekistan (1.6%) were the only countries in the region posting positive economic growths in 2020. Turkey faced double-digit inflation and massive depreciation of Lira caused by Erdogan’s unorthodox economic policies, while growth in Uzbekistan was supported by gold price rally, the main export category for the country as well as swift support from IFIs.
• Ukraine’s economy is estimated to contract by 5.2% in 2020. Apart from pandemic-related economic disruptions, growth was adversely affected by reduced agriculture output (holding largest share among other regional countries) due to droughts.
• Georgia’s economy contracted by 6.1% in 2020 as recovery dynamics of 3Q was reversed by 2nd lockdown from end-November. Absence of tourism hit hardest Georgia, where tourism inflows hold the largest share in the economy among the regional peers.
• In 2021, all countries in the region are expected to return to the positive growth trajectory considering vaccinations, gradual lifting of lockdown restrictions, and improved domestic and external sentiments. We expect the largest growth rebound in 2021 in Georgia, Uzbekistan and Turkey.
• Inflation pressures increased by end-2020 in most regional countries due to exchange rate pass-through coupled with increased commodity prices globally. Georgia recorded the lowest inflation level among the peers (see details). We expect price pressures to continue in 2021, reflecting rebound in demand and sustained increase in world commodity prices.
Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, Ukraine, Russia, Turkey, Uzbekistan.
