Caucasus Business Forecast Report Q2 2010 : Market Research Report

Caucasus Business Forecast Report Q2 2010

Published by: Business Monitor International

Published: Feb. 5, 2010 - 78 Pages

BMI Ratings: BMI Risk Ratings - Armenia; BMI Risk Ratings - Azerbaijan; BMI Risk Ratings - Georgia; Emerging Europe - Ratings League Tables; Executive Summary; Growth Across The Region In 2010
Chapter 1.1: Political Outlook - Armenia: Foreign Policy; Improved Relations With Turkey On Course; We continue to expect Armenia-Turkey relations to improve through the medium term, with ratification by Yerevan; and Ankara of two protocols on re-establishing diplomatic relations likely in the near future.
table: Armenian Political Table
Chapter 1.2: Economic Outlook - Armenia: Economic Activity; 4.0% Real GDP Growth In 2010; We expect the Armenian economy to rebound strongly in 2010, with 4.0% real GDP growth forecast.
table: ARMENIA - ECONOMIC ACTIVITY: Banking Sector; Banking Sector: Weakened, But Fundamentally Stable; Limited domestic penetration, a low level of integration with global capital markets, and a high level of deposit; dollarization has significantly mitigated the impact of the Armenian recession on its banking sector.
Chapter 1.3: 10-Year Forecast - Armenia: The Armenian Economy To 2019; Convergence To Continue; The Armenian government’s commitment to push ahead with economic and business reforms will leave the ground; well-prepared for economic growth to average 5.1% between 2015 and 2019.
table: ARMENIA Long-Term Macroeco nomic Forecasts
Chapter 2.1: Political Outlook - Azerbaijan: Foreign Policy; We expect a permanent solution to the Nagorno-Karabakh ‘frozen conflict’ within our five-year forecast period.
table: A Protr acted Proce ss
Chapter 2.2: Economic Outlook - Azerbaijan: Fiscal Policy; We expect the Azerbaijani state surplus to reach AZN293.1bn by end-2009 (0.7% of GDP), up from AZN82.0bn in; 2008 (0.2% of GDP), with revenues and expenditures both set to fall in line with declining oil prices.
table: AZERBAIJAN - FISCAL POLICY: Balance Of Payments
table: AZERBAIJAN - CURRENT ACCOUNT: Banking Sector
Chapter 2.3: 10-Year Forecast - Azerbaijan: The Azerbaijani Economy To 2019; Trend Growth Will Be Lower Between 2015 And 2019; Over our 10-year forecast period to 2019, we believe Azerbaijan’s economy will remain on a positive trajectory.
table: AZERBAIJAN Long-Term Macroeco nomic Forecasts
Chapter 3.1: Political Outlook - Georgia: Long-Term Political Outlook; Pro-Western Path To Continue; We expect Georgia’s tensions with Russia to gradually subside over the next 10 years, but highlight that the; potential for social unrest in border areas will remain pronounced.
table: Regional Tension Remains: Foreign Policy
Chapter 3.2: Economic Outlook - Georgia: Fiscal Policy; Deficit To Compress Over Medium Term; We expect the Georgian budget deficit to narrow to 3.3% of GDP in 2010, as revenues increase and expenditures; fall from their 2009 levels in line with real GDP growth of 3.2%.
table: GEORGIA - FISCAL POLICY: Banking Sector
table: GEORGIA MAJOR BANKS TABLE
Chapter 3.3: 10-Year Forecast - Georgia: The Georgian Economy To 2019; Foreign Investment Will Support Growth Long Term; Over our ten-year forecast period we project Georgian growth to remain relatively robust averaging 5.1% through; 2015-2019.
table: GEORGIA Long-Term Macroeco nomic Forecasts
Chapter 3.4: Business Environment - Georgia: Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATINGS: Institutions; Infrastructure; Market Orientation
Table: Europe , FDI Annual Inflow s
TABLE: BMI TRADE RATINGS
TABLE: TOP EXPORT DESTINATIONS: Operational Risk
Chapter 4: Special Report: Political Risk In The Next Decade; What To Expect In 2010-2019
Table: Countries Facing Major Leadership Succession In 2010-2019
Table: Countries At Risk Of Major Political Upheaval
Table: Countries At Risk Of Interstate Conflict Or Heightened Bilateral Tension
Table: Countrie s Faci ng Sece ssio nist Or Auto nomy Moveme nts, Insurge ncie s, Or Civil Wars
Table: Pivot al St ates
Chapter 5: BMI Global Assumptions: Global Outlook; 2010 Looking Rosier
TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH
TABLE: developed market exc hange rates
Table: Emergi ng Market Exc hange Rates
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES
TABLE: EMERGING MARKETS

Abstract

We continue to expect sharp differentiations in economic growth between the three Caucasuseconomies over the medium term. We now see the Azerbaijani economy growing 11.0% in 2010,up from an estimated 9.0% in 2009, given an expected uptick in oil production and higher oil prices.At the other end, Armenia suffered an estimated 16.5% real GDP contraction in 2009, with its relianceon investment, exports and remittances from Russia contributing to a deep recession. WithRussia set to undergo a robust recovery in 2010, presaging increased demand for exports and anuptick in remittances, we expect the Armenian economy to grow 4.0%. We expect Georgia to postthe weakest growth in 2010 (we forecast a 3.2% real GDP expansion), with political risk concernsfollowing its 2008 war with Russia likely to continue weighing on foreign investor confidence.

We expect a permanent solution to the Nagorno-Karabakh ‘frozen conflict’ within our five-yearforecast period. That said, we stress that tangible progress in the near term will depend on anagreement between Armenia and Azerbaijan on the future legal status of the enclave, with theterms of a future referendum on the extent of Nagorno-Karabakh’s independence likely to be thekey sticking point. In addition, we highlight the continuing risks posed by aggressive rhetoric fromboth sides, which could yet derail the progress which has been made so far.

We see the Armenian economy rebounding strongly in 2010, with 4.0% real GDP growth currentlypencilled in. Russia’s recovery will be key, ensuring strong remittance inflows and higher demandfor exports. In addition, the FDI-financed economic expansion of recent years leaves Armenia withrelatively little external leverage to unwind, while loans from Moscow and multilateral institutionswill ensure that the ongoing current account deficit is adequately covered.

The worst effects of the global financial crisis on the Georgian banking sector have now passed,with financial soundness indicators signalling broad-based stabilisation through Q309. Havingreceived equity injections from major multilateral financial institutions, the country’s major banksnow look better positioned to ride out the effects of real sector deterioration. That said, the processof deleveraging and unwinding bad loans will last into 2011. Thus, while asset contraction (inm-o-m terms) is likely coming to an end, a quick recovery is still unlikely.

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Caucasus Business Forecast Report Q2 2010

Table of Contents

Abstract