The South Caucasus economies have suffered fourfold negative shocks in the wake of the pandemic: last year's sharp drop in oil prices, lockdowns, the Karabakh war, and the political crisis. Political instability usually has a high economic price for the population. This factor is the highest in Georgia and Armenia. Report.ge counted trends in the economy of the South Caucasus. As for the impact of the oil market on this zone, experts say that the change in the oil market will directly affect the economy of Azerbaijan and Armenia, and Georgia's economies through foreign trade. The fact is that the demand for oil and the rise in prices continued in January, which positively impacted oil-exporting countries. According to global market analysts, the shock from the oil market to the economies of the region at the end of 2020 was low, as compared to the first half of the year, oil demand and prices were rising. This trend was maintained in January-February, which primarily reflected in oil-exporting countries. Azerbaijan is the only country in this category in the South Caucasus. That is why the oil market's positive impulses this year have had a positive impact on its economic situation.
According to global market observers, this growth is driven by expectations of a vaccine-induced economic recovery, large stimulus packages, and reduced supply from oil producers. According to analysts, rising oil prices are also supported by low production volumes from OPEC countries.
Oil market expectations have improved. Oil prices are projected to rise to $ 80 this year. SOCAR Trading SA (SOCAR Trading Subsidiary) expects oil prices to rise to $ 80 a barrel in 2021 and over $ 100 a barrel in the next 18 to 24 months. It is the opinion of Khayal Ahmadzadeh, the CEO of SOCAR Trading SA, a Swiss subsidiary of the State Oil Company of Azerbaijan.
Fuel prices also increased due to rising oil prices. In the last three months, the cost of fuel on the Georgian market has increased by 60 tetri. Fuel prices are expected to increase to GEL 3 in Georgia.
By 2020, oil-dependent economies shrunk by 3.4-4.3%. The pandemic demand-supply disruption in 2020 has led to unprecedented fluctuations in financial markets. After March 2020, WTI oil price exceeded $ 50 per barrel for the first time in January 2021.
According to experts, ultimately, the economic situation and the level of demand for oil depend on vaccination pace. Globally, artificial immunization is actively underway, which has already begun in the region, although the vaccination rate is still low. Analysts say vaccination is crucial for the recovery of the economy at this stage, as overcoming the crisis depends entirely on immunization.
Although the immunization process has started in the region, the uncertainty is high as the epidemiological situation worsens, leading to the so-called third wave. The third wave of restrictions has begun in Europe. The third "Lockdown" is also considered in Georgia. According to another study, Georgia ranks 15th out of 184 countries in the world in terms of COVID restrictions. Studies also show that before easing restrictions, the Georgian economy lost an average of GEL 16 million per day. Due to the restrictions, the country lost a total of GEL 1.0 billion in 2020. Georgia's economy shrank by 6.1% in 2020, with the most significant blow to Georgian tourism. This accounts for 74 percent of the country's economy. According to experts, the pandemic economic crisis is neither a cyclical nor a structural event. It is an entirely new phenomenon that reflects the economy's reaction, which is a "captive" of life-threatening disease, COVID-19.
According to the World Bank, Georgia's economy will grow by 4.0% during the year, while Armenia is expected to grow by 3.1%, Azerbaijan's GDP is expected to grow by 1.9% in 2021, and economic growth is expected to accelerate to 4.5% in 2022. As for Azerbaijan, whose financial situation is driven by the oil industry, expectations are relatively better. However, the risks remain: Experts suspect that due to the start of tightening restrictions in Europe, demand for oil may decrease in a short time, which will have an immediate negative impact on the economy of Azerbaijan. Following the forecast, a 1.9% growth of the Azerbaijani economy is expected in 2021. According to current forecasts, Georgia and Azerbaijan's economy in the two years will be 2.4% and 2.5% less than in the pre-pandemic period, and as for Armenia, 4.6%.
