On 5 January, the World Bank Group published their flagship “Global Economic Prospects” report, where it outlined the main economic trends countries around the world would face in 2021. 

While addressing the economic prospects of the Europe and Central Asia (ECA) countries, the World Bank Group estimated a 2.9 % contraction in the region in 2020 and projected a 3.3% growth in 2021, followed by a 3.9% growth in 2022. The report stated that the pandemic is expected to erase at least five years of per capita income gains in about a fifth of the region’s economies and raise the poverty headcount. However, the outlook remains highly uncertain, however, and growth could be weaker than envisioned if the pandemic takes longer than expected to fade, external financing conditions tighten, or geopolitical tensions escalate again. In all, the pandemic is estimated to push an additional 2.2 million under the $3.20 a day poverty line in the region, with household surveys in some countries, particularly in Central Asia, reporting an uptick in food insecurity.

When speaking on the economic policies of the ECA countries, fiscal support packages have been announced in nearly all ECA economies, with several governments receiving aid from official sources, ramping up borrowing in debt markets, and prioritising spending to bolster health care systems, strengthen safety nets, support the private sector and counter financial market disruptions. Job retention and labour market support schemes have also been implemented to sustain employment. Despite these measures, the pandemic is estimated to have triggered the working-hour equivalent of 106 million job losses in the first three quarters of 2020 in Europe. In all, the fiscal response and contraction in output is expected to raise average debt levels to over 50% of GDP by 2022—roughly 8 percentage points higher than in 2019.

In terms of monetary policies in the ECA region, they have become more expansionary as economic conditions deteriorated. Several central banks have intervened in foreign exchange markets to stabilise their currencies and mitigate volatility, while others have tapped sovereign wealth funds (Azerbaijan). Recent currency depreciation has put further upward pressure on inflation and reduced the scope for additional policy rate cuts, especially for countries with inflation near or above target ranges. Some countries have also used unconventional policies, such as asset purchases.

Addressing specifically the South Caucasus sub-region, the WB Group underlined that growth is projected to rise to 2.5% in 2021, as the shocks related to the pandemic and conflict dissipate, and as tourism recovers alongside improving consumer and business confidence. Activity is expected to expand in Azerbaijan over the forecast horizon as oil prices stabilise and the economy benefits from investment and reconstruction spending. The peace agreement between Armenia and Azerbaijan is also expected to help alleviate geopolitical tensions in the region.

According to the report, the Armenian economy contracted by 8% in 2020 and is expected to grow by 3.1% in 2021 and 4.5% in 2022 respectively. In Azerbaijan, the economy contracted by 5% in 2020 and is expected to grow by 1.9% in 2021 and 4.5% in 2022. In Georgia, the economy contracted by  6% in 2020, and is expected to grow by 4% in 2021 and 6% in 2022.