On 9 June, the World Bank (WB) released its report on the economic prospects of the regions in the world during the Covid-19 pandemic. The baseline forecast envisioned a 5.2% contraction in global GDP in 2020, which according to the WB is the deepest global recession in decades. 

As for the South Caucasus countries, the WB forecasted a 2.8% GDP drop in 2020 for Armenia, followed by 4.9% growth in 2021. In Azerbaijan a 2.6% drop of GDP was forecasted for 2020, followed by a 2.2% rise in 2021. As for Georgia, a 4.8% GDP drop was forecasted for 2020, followed by a 4% rise in 2021. 

Speaking in general on the Europe and Central Asia region (ECA), the WB stated that the pandemic and the social distancing measures were weighing heavily on domestic demand across the region, which is compounded by the collapse of commodity prices, tourism, remittances, and exports, as well as supply chain disruptions and financial market turmoil. Additionally, financial markets have been roiled by the pandemic, with economies in ECA suffering from substantial flight-to-safety outflows and a rise in bond spreads. “Likely to be hardest hit are economies with strong trade linkages to the Euro Area or Russia, including global value chains (GVCs); those heavily dependent on tourism; and those highly reliant on energy and metals exports,” the report emphasized. 

The report further outlined that large capital outflows in the region have reignited currency depreciation and triggered reserve losses. Weaker currencies have contributed to higher borrowing costs, particularly in economies with high levels of foreign-currency-denominated debt or where non-resident investors account for a sizable share of the local bond market. Roughly two thirds of the region’s central banks have responded to deteriorating growth prospects this year by providing further monetary support. Monetary authorities in several countries have intervened in foreign exchange markets to stabilize their currencies, mitigate volatility and in some cases using sovereign wealth funds to do so.

Fiscal support packages have been announced in nearly all economies in ECA and a number of countries have requested aid from official sources. Although funding has been allocated to boost the capacity and responsiveness of the healthcare system, some countries entered the crisis ill-prepared to cope with widespread infections given the limited capacity of health care systems and health care spending. 

The WB predicted that ECA economies are expected to contract overall by 4.7% in 2020, with recessions in nearly all of the countries in the region. The outlook assumes that restrictive measures to slow the spread of the virus will gradually lift by the start of the second half of 2020 and that the overall growth of the region was projected to recover to 3.6% in 2021. However, the WB underlined that the impact on growth in the region remains highly uncertain and could be more severe if the pandemic or the associated collapse in activity worsens, especially if national lockdowns are extended.