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.
From the political factor, the so-called second lockdown created additional problems for the economies of the Caucasus. The tightening of restrictions had a severe impact on the economies weakened by the first lockdown. The most severe restrictions from the Caucasus countries were in Georgia. The severity of restrictions in Georgia was assessed with 83.8 out of 100 points, which made our country hold the 6th position in the world. 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. The result was not delayed, and the Georgian economy shrank by 11.5% in January, by 5.1% in February, and a two-month average decline of 8.3%. Restrictions in Georgia were 14.5% stricter than in Azerbaijan in February and relatively light than in Armenia.
Restrictions in Azerbaijan do not have as much impact on the economy as in Armenia and Georgia, which is why the economy of this country shrank by only 3.2% in the first two months of this year, and the economy fell by 2.5% annually. This is because the share of the oil industry in the economy of Azerbaijan is high, and restrictions on neither production nor export of petroleum products have not been enacted in Azerbaijan, just like the rest of the world. Last year, Azerbaijan accounted for 29.9% of the country's economy in the oil industry. The relatively better economic situation in this country is due to the increase in demand and oil prices.
In Georgia and Armenia, the economy is mainly generated by the service sector; in the case of Georgia, tourism is included. The pandemic restrictions hit these sectors, so the pandemic has affected Georgia and Armenia more than Azerbaijan. In January-February, Armenia had a 6.7% economic contraction. In January alone, the country's economy shrank by 8.2%. Last year, Armenia's economy shrank the most in the region. Experts link it to the great lockdown and the 47-day Karabakh war. Last year, the Armenian economy shrank by 7.5%, while the Georgian economy shrank by 6.2%. The two-month decline of the Georgian economy by 8.3% is the deepest recession not only in the Caucasus but in the region as a whole.
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.
According to the International Monetary Fund, Georgia will have an economic growth forecast of 5% in 2021 and will be the first in the region in 2021-2025, with 5.5% economic growth.
Specialists have been talking more and more about the need to deepen economic ties in the South Caucasus. They see a real opportunity to deepen ties between the countries of the region and turn Tbilisi into a platform for dialogue on economic issues. We are also talking about the single economic zone of the South Caucasus, where Azerbaijan, Armenia, and Georgia will trade without customs duties and get great financial benefits. Experts say the governments of Georgia, Azerbaijan, and Armenia will have to make sensible decisions, work together and make the right economic choices, which will also strengthen the region's geopolitical role.
