The previous month was hard for the economies of the South Caucasus countries. The economic crisis was caused by a “big lockdown”. In fact, the economies of the South Caucasus countries received four negative shocks - a sharp drop in oil prices at the beginning of the year, restrictions imposed by the pandemic, the Karabakh war and the political crisis.
Political instability, as well as COVID-related restrictions, had a negative impact on the economic situation. Georgia had the toughest restrictions from the Caucasus countries in January 2021. According to the index developed by the Oxford, Georgia was at the level of 83.8 [maximum 100] by the severity of restrictions and ranked as the 6th with the strictest restrictions worldwide. Naturally, the large-scale cessation of economic activity was reflected in a sharp decline in the economy.
In January, the Georgian economy shrank by 11.5%, as the service sector plays a prominent role in country’s economy. More than 60.0% of the Georgian economy is occupied by services, unlike the economy of Azerbaijan.
Strict restrictions imposed in Azerbaijan had an impact on the deteriorating economic situation, but much less comparing to other countries. A large share of the economy of Azerbaijan falls on the oil industry, and COVID-related restrictions have no impact on this industry. Against this background, the economy of Azerbaijan shrank by 2.5% in January. Last year, the economy shrank by 4.3%, the lowest in the region. Separately, excluding the oil industry, the economy grew by 0.1% in January. This indicates the special role of oil in the economy of this country.
We cannot say the same about the Armenian economy, which is structurally similar to Georgia and shrank by 7.5% last year amid the pandemic and the 47-day war. In January of this year, decline of the Armenian economy reached the same rate.
