Central Asia and the South Caucasus are well set for relatively high levels of growth in 2024

Uncertainty surrounding the evolution of Russia’s war on Ukraine plays an important role in shaping the regional outlook, says the World Bank. Excluding these two economies, growth in the region is expected to accelerate to 3.1 per cent this year and to 3.7 per cent in 2025.

As the world nears the midpoint of what was intended to be a transformative decade for development, the global economy is set to rack up a sorry record by the end of 2024—the slowest half-decade of GDP growth in 30 years, according to the World Bank’s latest Global Economic Prospects—the first major economic report of the new year.

Emerging Europe and Central Asia (ECA) are no exception. While growth in ECA picked up in 2023 to 2.7 per cent, from 1.2 per cent in 2022, driven by strengthened domestic demand, additional fiscal support, robust labour market conditions, and the resumption of growth in Russia and Ukraine, if those countries and Turkey are excluded, ECA witnessed a notable slowdown in 2023, estimated at 1.8 per cent.

This deceleration was widespread, impacting 78 per cent of the region’s economies. The impact of weak external demand from the euro area was particularly pronounced in Central Europe, where growth was subdued at 0.7 per cent—the lowest among the subregions—and in the Western Balkans.

Growth also slowed in South Caucasus but accelerated in Central Asia. Remittance flows played an important role in supporting demand in Armenia, Kyrgyzstan, and Tajikistan. In Eastern Europe, growth returned to positive territory, with Ukraine experiencing a growth rate of 4.8 per cent following the preceding year’s steep contraction.

Nonetheless, output in Ukraine remained about 30 per cent lower in 2023 than its pre-invasion level Growth was underpinned by improved electricity access, a better harvest, and additional government spending, albeit at the cost of increasing fiscal and current account deficits.

While the unraveling of the Black Sea Grain Initiative in July 2023 continues to exert downward pressure on grain exports, Ukraine has successfully identified alternative routes for grain exports that have supported the sector. Despite this positive trend, Ukraine’s output in 2023 remained 30 per cent below its pre-invasion level.

Headline inflation in the region has decelerated, alongside easing energy and food price pressures, but remains above target in most countries. With subdued activity and easing inflation, policy interest rates have likely reached their peak in many economies, the World Bank believes, prompting several central banks to start lowering rates.

The outlook

Growth in ECA is projected to moderate to 2.4 per cent in 2024 and then firm to 2.7 per cent in 2025. The main drivers of this growth include private consumption, which is supported by reduced inflationary pressures, and exports, which are boosted by a gradual recovery in the euro area.

However, uncertainty surrounding the evolution of Russia’s war on Ukraine plays an important role in shaping the regional outlook. Excluding these two economies, growth in the region is expected to accelerate to 3.1 per cent this year and to 3.7 per cent in 2025. The highest levels of growth will be in Central Asia and the South Caucasus—5.5 per cent in Tajikistan and Uzbekistan, and 4.8 per cent in Georgia—but these figures are significantly down on 2023.

Most ECA countries are likely to continue easing monetary policy, as inflation is projected to decline. However, projected fiscal consolidation dampens the outlook.

Regional growth is expected to remain below its pre-pandemic trend due to the lingering effects of the pandemic and Russia’s invasion of Ukraine. The pace of income per capita convergence in ECA is expected to remain sluggish, with average income per capita reaching only 24 per cent of the EU level in 2025.


Risks to the regional outlook remain tilted to the downside, the Bank says. An escalation of the conflict in the Middle East could increase energy prices, tighten financial conditions, and negatively affect confidence.

Other geopolitical risks meanwhile include an escalation of Russia’s war, and tensions between Armenia and Azerbaijan, and between Kosovo and Serbia.

The high number of presidential, parliamentary, and local elections in 2024 also increases uncertainty about future economic policies.

Higher-than-anticipated inflation could keep monetary policies tighter for longer, the report says. A weaker-than-expected recovery in the euro area, the region’s main trading partner, would also negatively impact regional activity.

Additionally, a more significant slowdown in China or a sharper-than-expected reduction in remittances from Russia would represent external headwinds to Central Asia and the South Caucasus. Further delays in the disbursement of EU funds pose another downside risk for Central Europe, as do delays in reforms tied to EU accession in the Western Balkans. 

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