We have downgraded GDP growth expectations for all of our coverage countries, except Armenia. The move reflects the still complex global economic conditions and is further aggravated by regional geopolitical turbulences and a slowdown in economic growth in Russia.
The biggest revisions were to our forecasts for Ukraine, where we now think a pronounced GDP decline is inevitable, accompanied by a spike in inflation. At the same time, hefty devaluation has created grounds for a positive correction in the previously deep deficit on the current account. Belarus also remains a source of concern due to the persistent current account deficit and uncertainties over the availability and timing of external financing options. Risks to the GDP growth forecast are also skewed towards the downside. In Armenia, the delay in reforming the pension system is to have a positive effect on disposable incomes and consumption. Coupled with the more favourable terms of trade stemming from the expected membership in the Customs Union, this would result in Armenia's 2014 GDP growth coming at a slightly higher pace than we expected back in 2013. For Georgia, this year will likely be more of a transition period before growth strengthens in 2015, helped by the start of construction on a new pipeline from Azerbaijan into Turkey. The dynamics in Azerbaijan and Kazakhstan will continue to depend heavily on energy-related projects and wider investment activities.