Publications

Following several years of experience producing monthly reviews of the Caucasus economy, Gnomon Wise is launching a quarterly review of the South Caucasus. Namely, this new publication covers two key macroeconomic parameters: economic growth and inflation. Considering their leading role in regional economies and methodological relevance, external trade and lending are also analyzed. In addition, in response to inflationary developments, dynamics of monetary policy are highlighted.

In the post-pandemic period, the previously high economic growth rate in the South Caucasus was slowed. In the fourth quarter of 2025, compared to the same period of the previous year, the region’s economy expanded by 4.3%. For comparison, in the final quarter of 2024, economic growth in the South Caucasus stood at 5.2%. The slowdown in the region’s economic expansion during this period is largely linked to lower economic growth in Azerbaijan, which accounts for more than half of the Caucasus economy. The deterioration of economic conditions in the latter is mainly due to declining oil prices, a sector that constitutes roughly one-third of the economy.

External trade is a key driver of economic growth. The region’s economies are open, which underpins the significant role of foreign trade in economic development. In the fourth quarter of 2025, the total trade turnover of the Caucasus reached USD 27,340.2 million, representing a 5.8% increase compared to the same period of the previous year. In this regard, trade dynamics improved toward the end of the year. During this period, growth was primarily driven by goods imports. In Q4 2025, the value of imports increased by 12.3% compared to the previous year. At the same time, exports declined by 2.9%, mainly due to a contraction in export revenues from Azerbaijan, driven by falling oil prices.

Loans issued by commercial banks represent an important source of financing for domestic consumption and investment in the Caucasus (particularly in Georgia). By the end of the fourth quarter of 2025, the total volume of loans issued by commercial banks in the region amounted to USD 65,291.4 million, reflecting an annual increase of 18.1%. The annual growth rate of lending showed relative improvement during this period, compared to 16.8% recorded in the third quarter of the previous year.

Inflation remained a challenge for central banks in the region, as in the fourth quarter of 2025, the overall increase in the price level largely exceeded target levels. In terms of consumer price growth, the situation was relatively favorable in Armenia, while more negative in Azerbaijan. By the end of the year, the average annual inflation rate in the Caucasus stood at 4.5%, reflecting an acceleration compared to previous periods. Nevertheless, central banks have generally pursued a monetary policy stance oriented toward easing.

See the attached file for the entire document.