Caucasus Business Forecast Report Q3 2009

Publication Date	May 2009
Publisher	Business Monitor
Product Type	Report
Pages	72
ISBN Number	1750-2144
Product Code	BMI03895

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Summary

Caucasus Region Heads Deeper Into Recession

BMI's Q309 Caucasus Quarterly Report highlights the growing risks to political and economic stability to the three countries in the region as the global financial crisis continues. We project real GDP growth to contract by 1.9%, 0.9% and 1.8% in Armenia, Azerbaijan and Georgia, respectively.

That said, we expect signs of a recovery to appear in mid-2010, with all three countries forecast to record positive growth this year. We are concerned that as the countries head deeper into recession, and unemployment rises and real living standards fall, political stability will be undermined throughout the region. Already we have seen large scale protests in the Georgian capital Tbilisi and caution that similar protests, albeit on a smaller scale, could be witnessed in Armenia and Azerbaijan.

We have revised down Azerbaijan's long-term political risk rating to 54.0 following the holding of a referendum on significant amendments to the constitution. The downgrade reflects the negative impact that these changes will have on the country's political system. That said, despite the unattractive implications for the political sphere, the indefinite extension of Aliyev's tenure at the helm may offer international investors a sense of stability and certainty in terms of economic policy making.

Georgia's banking sector continues to weaken on the back of the global financial crisis and we believe that asset contraction is inevitable in 2009. This will significantly elevate refinancing risks further, especially as deposits continued to fall while loan growth remained in the double digits through early 2009. To be sure, several Georgian banks have received capital injections through equity sales to multilateral development banks in Q408-Q109 and this is likely to continue going forward, providing a modicum of stability. That said, a deleveraging process is still expected, which will ultimately weigh on the economy's growth prospects through the medium term.

Armenia hosted the twentieth Meeting of the Council of Ministers of Foreign Affairs of the Organisation of the Black Sea Economic Cooperation (BSEC) in the capital Yerevan on April 15-16. The meeting was chaired by the country's Foreign Minister Edward Nalbandian. Ministers discussed a number of key issues including: further co-operation with other international organisations, the rehabilitation of the Black Sea marine environment, minimising the impact of the global financial crisis, and the most beneficial use of BSEC funds for the region. We believe the hosting of the meeting will help to raise Armenia's profile in the region, and could increase the country's political and economic co-operation with other countries in the group.

Content

BMI Ratings
- BMI Risk Ratings - Armenia
- BMI Risk Ratings - Azerbaijan
- BMI Risk Ratings - Georgia
- Emerging Europe - Ratings League Executive Summary
- Caucasus Region Heads Deeper Into Recession
Chapter 1.1: Political Outlook - Armenia
- Domestic Politics
- Elevated Risks To Government's Longevity
- The outbreak of anti-government protests on March 1 in the Armenian capital Yerevan (on the one year anniversary of
- violent clashes between the opposition and security forces), reinforces our view that the risks to the government's
- longevity are elevated.
- Foreign Policy
Chapter 1.2: Economic Outlook - Armenia
- Economic Activity
- Expect A Full-Year Recession
- We have recently revised down our real GDP growth forecast for Armenia, and now project a contraction of 1.9% in 2009.
- Economic Analysis
Chapter 1.3: 10-Year Forecast - Armenia
- The Armenian Economy To 2018
- Economic Diversity Will Be Supportive Of Growth To 2018
- Our positive medium-term view on the Armenian economy through to 2013 continues through our long-term forecast
- through to 2018.
Chapter 1.4: Business Environment - Armenia
- Armenia Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 2.1: Political Outlook - Azerbaijan
- Domestic Politics
- Concerns Over Rising Authoritarianism
- We have revised down Azerbaijan's long-term political risk rating to 54.0 following the holding of a referendum on
- significant amendments to the constitution.
- Foreign Policy
Chapter 2.2: Economic Outlook - Azerbaijan
- Economic Analysis
- Banking Sector: Rising Risks With Macroeconomic Downturn
- We expect growth in the Azeri banking sector to diminish considerably in 2009 alongside the rapid deterioration of
- oil prices and the overall macroeconomic outlook.
- Currency Forecast
Chapter 2.3: 10-Year Forecast - Azerbaijan
- The Azerbaijan Economy To 2018
- Trend Growth Will Be Lower Between 2014-2018
- Over our ten-year forecast period to 2018, we believe that Azerbaijan's economy will remain on a positive trajectory.
Chapter 3.1: Political Outlook - Georgia
- Political Outlook
- Elevated Risks To Saakashvili's Presidency
- Protests in Georgia against President Mikhail Saakashvili and his government are expected to continue through
- the medium term.
Chapter 3.2: Economic Outlook - Georgia
- Economic Activity
- Expect A Full Year Recession
- We now forecast the Georgian economy to head into recession in 2009, with growth projected to contract by 1.8% in
- 2009, followed by a mild 1.5% recovery in 2010.
- Banking Sector
Chapter 3.3: 10-Year Forecast - Georgia
- The Georgian Economy To 2018
- Foreign Investment Will Support Growth Over The Longer Term
- Over our 10-year forecast period we project Georgian growth to remain relatively robust averaging 4.2% through
- 2010 to 2018.
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: BMI Global Assumptions
- Global Outlook
List of Tables
- Table: ARMENIA Political Overview
- Table: ARMENIA - ECONOMIC ACTIVITY
- Table: ARMENIA Long-Term Macroeconomic Forecasts
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: EMERGING EUROPE
- Table: BMI TRADE RATINGS
- Table: Azerbaijan Political Overview
- Table: AZERI TOP 10 BANKS
- Table: AZERBAIJA N - ECONOMIC ACTIVITY
- Table: AZERBAIJA N Long-Term Macroeconomic Forecasts
- Table: Georgia Political Overview
- Table: GEORGIA - ECONOMIC ACTIVITY
- Table: GEORGIAN BANKING SECTOR - TOP 10 BANKS
table: GEORGIA Long-Term Macroeconomic Forecasts
- Table: LOAN-TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL ASSUMPTIONS - LONG-TERM FORECASTS
- Table: Developed States, Real GDP Growth Forecast
- Table: EMERGING MARKETS, REAL GDP GROWTH FORECAST
- Table: Commodities
- Table: GLOBAL & REGIONAL REAL GDP GROWTH