EBRD revises economic growth in Armenia up to 5% 

ArmInfo.Armenia's economic growth moderated from 5.9 per cent in 2024 to 5.5 per cent year on year in the first half of 2025, as the exceptional post2022 boom  faded, and industry contracted. Growth was increasingly supported by  public investment and other sources of domestic demand as the effects  of re-export and migration subsided. 

Meanwhile, inflation returned to the Central Bank of Armenia's (CBA)  target range of 2- 4 per cent after low readings in 2024. It averaged  3.2 per cent in the first seven months of 2025, rising from 1.7 per  cent in January to 4.3 per cent in May before easing to 3.4 per cent  in July. The CBA has held its policy rate steady at 6.75 per cent  since February 2025, signalling caution in light of more expansionary  fiscal policy. In the first half of the year, the fiscal deficit  reached 0.8 per cent of GDP, compared with a surplus in the same  period of 2024, as expenditure rose 19 per cent year on year.  Reflecting lower re-exports, exports of goods fell by more than half  year on year in the first half of 2025, while imports contracted by  nearly 40 per cent. GDP growth is projected at 5 per cent in 2025  moderating to 4.5 per cent in 2026. 

On the upside, the US-brokered peace framework with Azerbaijan could  reduce geopolitical risk, unlock higher private investment and boost  tourism. A potential normalisation of relations with Turkiye could  significantly enhance Armenia's role in East-West transit and  regional logistics. However, downside risks persist, including a  widening current account deficit, continued reliance on remittances  and exposure to regional shocks," according to the report entitled  'Regional Economic Prospects in the EBRD Regions'

Low economic growth expected in Azerbaijan

Azerbaijan Economic growth slowed from 4.1 per cent in 2024 to 1.5  per cent year on year in the first half of 2025, as output of  hydrocarbons contracted by 3.1 per cent while non-oil activity  expanded by 3.8 per cent driven by construction, trade and tourism.  Non-oil sectors now make up over twothirds of GDP.  Headline  inflation picked up from an average of 2.2 per cent in 2024 to 5.6  per cent in the first eight months of 2025, driven by rising prices  of food and services. In July 2025, the Central Bank of Azerbaijan  lowered its policy rate by 25 basis points to 7.0 per cent, bringing  cumulative easing since late 2023 to 200 basis points, despite  inflation running close to the upper end of the 4 per cent (+2)  target band. Fiscal and external buffers remain strong. The state  budget recorded a surplus of 4.4 per cent of GDP in the first half of  2025, slightly below that of 2024, as revenues and oil prices  surpassed budget projections. Foreign reserves (including the assets  of SOFAZ, the state oil fund) reached US$ 78.8 billion by mid-2025,  covering more than three years of imports. As a result, Moody's  upgraded Azerbaijan's sovereign rating to Baa3 in June 2025,  highlighting the country's fiscal resilience. Real GDP is forecast to  grow by 2 per cent in 2025 and 2.5 per cent in 2026, with solid  non-oil activity offset by weaker hydrocarbons. Energy price  volatility, global trade uncertainty and regional geopolitics pose  downside risks. Upside potential stems from the cooperation on energy  with the EU, expansion of the Middle Corridor and the US-backed peace  framework with Armenia, which could unlock new trade routes and  improve investor confidence. Georgia Georgia's growth decelerated  from 9.4 per cent in 2024 to an estimated 8.3 per cent year on year  in the first half of 2025. Growth was driven by credit expansion,  rapid growth in the IT and education sectors and booming exports of  services. After averaging 1.1 per cent in 2024, inflation edged  higher to 3.5 per cent in the first eight months of 2025. This is  slightly above the National Bank of 36 Georgia's (NBG) target of 3  per cent. The policy rate has been held at 8 per cent since May 2024.  Fiscal and external positions remained relatively strong, helped by  resilient tourism, while foreign direct investment slowed in 2024 and  the first half of 2025 reflecting weaker sentiment. Foreign reserves  recovered to US$ 5.2 billion by August 2025, covering more than three  months of imports. Growth is forecast at 7 per cent in 2025  moderating to 5 per cent in 2026, as external conditions soften.  Upside risks include stronger external demand and continued buoyancy  in services, while downside risks stem from weaker global growth,  de-facto suspension of the EU accession process over domestic  democratic backsliding and investor caution. Maintaining  macroeconomic buffers and policy credibility will be critical to  sustaining investor confidence.

In eastern Europe and the Caucasus, growth slowed from 4.7 per cent  in 2023 to 3.9 per cent in 2024 and 2 per cent in the first half of  2025 as the boost from intermediated trade and inflows of labour and  capital to the economies of the Caucasus waned. Growth slowed sharply  in Azerbaijan as the oil and gas sector contracted, while in Georgia  the moderation in growth has been slower than expected, with  continued strong performance in ICT and other service sectors.  Average growth in the region is expected to pick up to 3 per cent in  2025 and 4.4 per cent in 2026. The 2025 growth forecasts for Moldova  and Ukraine have been revised down. In Moldova, this reflects weak  outturns in agriculture and manufacturing, high energy imports and  still-high inflation weighing on consumption. In Ukraine, the impact  of the ongoing Russian aggression has been compounded by weak  harvests, and the external sector deteriorated. 

Russian economic nearing stagnation 

In January-July 2025, real GDP growth in Belarus decelerated to 1.3  per cent year on year, primarily as a result of contractions in the  manufacturing and agricultural sectors.  At the same time, inflation  rose to 7.4 per cent in July, reflecting higher prices of food and  services. Given the 45 heightened reliance on the Russian economy and  the moderation of growth in Russia, short-term economic prospects  appear unfavourable.  Real GDP is expected to grow by 1.7 per cent in  2025 and 2.3 per cent in 2026. While a better harvest may support  economic performance in 2025, the economic sanctions currently in  place continue to pose significant downside risks. 

Economic growth in Russia slowed to 1.2 per cent year on year in the  first half of 2025 due to weaker domestic demand and lower oil export  revenues. While defence industries continued to support GDP growth,  activity in the extractive industries remained weak and trade growth  turned negative. The current account surplus dropped by 40 per cent  in the first half of the year and the budget deficit widened.  Inflation eased slightly but remained high at 8.1 per cent year on  year in August 2025, exceeding the target. In July 2025, the Bank of  Russia cut its policy rate by 200 basis points to 18 per cent. Real  GDP growth is projected at 1.3 per cent in 2025 and 2026, with risks  mostly on the downside. 

Numerous risks to growth prospects

Growth prospects in the EBRD's regions are subject to numerous risks  associated with renewed economic and trade policy uncertainty and a  further escalation of geopolitical tensions. A slowdown in key  trading partners such as Germany (which could face a third  consecutive year of recession, the first in post-war history) and  China could have significant spillover effects on the economies of  many countries in the EBRD's regions. Renewed inflationary pressures  and extreme weather events pose additional risks for many economies.

It is worth noting that in their April forecasts, the IMF and the  World Bank predicted a further slowdown in Armenia's GDP growth rate  in 2025 to 4.5% and 4%, respectively. The Central Bank of Armenia's  updated September forecast improved the GDP growth rate in 2025 to  5.8-5.7%, depending on the inflation trajectory. According to the  Statistical Committee of the Republic of Armenia, Armenia's GDP  growth, after accelerating from 5.8% to 12.6% in 2022, began to slow  to 8.3% in 2023 and then to 5.9% in 2024, amounting to 10.2 trillion  drams (approximately $26 billion) in absolute terms. The GDP deflator  index also began to decline to 103.1% in 2023 and to 101.4% in 2024  after growing from 106.9% to 108% in 2022. It should be noted that  the inflation target has been updated to 3% with a tolerance of +/- 1  percentage point starting in 2025, compared to the previous 4% (+/-  1.5 percentage points).  For details following link:  file:///D:/txt/RegionalEconomicProspects-Sep2025.pdf