Growth Across Central Asia and the Caucasus Expected To Slow, With Azerbaijan A Small Exception

A new World Bank and IMF read on the region warns that households and small businesses from Bishkek to Tbilisi could face a prolonged period of weaker expansion, and that escalating unrest in the Persian Gulf is adding fresh uncertainty to already fragile forecasts.

The World Bank’s latest regional review and the IMF’s spring outlook both show broad deceleration across Central Asia and the South Caucasus. The exception is Azerbaijan, which is forecast to register modest positive growth while its neighbors slip. Analysts say the immediate fallout from recent U.S. and Israeli strikes on Iran, along with rising geopolitical frictions and more guarded global trade, could curb investment and reduce demand for exports — pressures that tend to hit ordinary consumers and local firms first.

The World Bank’s estimates single out Kyrgyzstan for the steepest retreat: the economy grew at roughly one in nine last year but is projected to slow to about six out of 100 by 2027. Across Central Asia, the mean pace dropped from roughly seven out of 100 in 2025 to an expected near five out of 100 this year, dipping further toward five out of 100 in the following year. For citizens, that can mean fewer new jobs and tighter credit conditions for small enterprises.

In the Caucasus the outlook is similarly muted. Georgia, long viewed as the regional growth leader, is forecast to ease from about eight out of 100 in 2025 to roughly six out of 100 by 2027, continuing a multiyear slide from double-digit expansion in 2022. Armenia’s trajectory is expected to mirror that pattern, falling from roughly seven out of 100 last year to near five out of 100 by 2027. By contrast, the World Bank projects Azerbaijan’s output to remain under two out of 100 over the near term — small growth, but still positive compared with many neighbors.

The IMF’s numbers tend to be a touch more optimistic on some economies. Both institutions put Kazakhstan’s growth last year at about six and a half out of 100, but the World Bank expects roughly four out of 100 in 2027 while the IMF allows for closer to four and a half out of 100. The IMF also includes Turkmenistan, which expanded by about three and a half out of 100 in 2025 and is forecast to slow toward about three out of 100 this year and roughly two out of 100 the next.

Economists cautioned that the region’s outlook is fragile. “If tensions persist in the Gulf, firms will defer investment and households will pull back,” said a Central Asia economist at a European policy center. He added that shocks to energy and trade channels can ripple quickly through economies that rely on commodity exports and migrant remittances.

Both the World Bank and the IMF point to policy choices that could blunt the slowdown. Recommendations include opening up private markets, trimming bureaucratic hurdles for start-ups, and upgrading workforce skills so local entrepreneurs and consumers can benefit from productivity gains. A regional policy analyst noted that while industry-specific support can help in the short term, broader reforms that make it easier to start and grow a business will do more to lift living standards over time.