Political tensions in the South Caucasus will remain high over thecoming years as increased Russian intervention in Georgia's breakawayterritories fuels concerns that Russia will fully annex Abkhaziaand South Ossetia. Meanwhile, Azerbaijani-Armenian relations willremain strained over the conflict surrounding Nagorno-Karabakhafter the conflict escalated in April 2016.
The Armenian economy will recover in 2017 and 2018 primarily dueto recovering remittances inflows from Russia and rising commodityprices (copper and gold), the country's main export. A recoveringRussian economy will provide further tailwinds to Armenia's externalsector and foreign direct investment (FDI) inflows.
Georgian real GDP growth will accelerate in 2017 and 2018 mainly onaccount of numerous investment projects in the pipeline and tighterintegration with the EU, after gaining visa-free access to the singlemarket in early 2017. Furthermore, a recovering Russian economywill provide remittances inflows a boost, which will continue to bean integral part of the Georgian economy.
Azerbaijan will start to recover in 2017, mainly due to higher oilprices, after economic growth contracted in 2016, its first recessionin over 20 years. While energy trade with the EU and Turkey willcontinue to be in the economic interest of Azerbaijan, it will alsomaintain good relations with Moscow.