The latest Asian Development Bank forecast highlights a widening divergence among the three South Caucasus economies, with Georgia accelerating, Armenia maintaining relatively strong growth and Azerbaijan facing a slower expansion as its oil sector contracts.
In its Asian Development Outlook (ADO) September 2026, the Asian Development Bank (ADB) revised its forecast for the broader Caucasus and Central and West Asia subregion downward. Economic growth is now projected at 3.7% in 2026, compared with 3.8% in the July forecast, and at 4.1% in 2027, down from 4.2% previously.
The overall revision, however, masks significant differences within the South Caucasus.
photo: getty images
Azerbaijan: Growth Forecast Cut to 1.6%
Azerbaijan is facing the sharpest slowdown among the three South Caucasus economies covered by the ADB.
The bank lowered its forecast for Azerbaijan's economic growth in 2026 to 1.6% from 2.0% in its July outlook. For 2027, growth is projected at around 1.8%.
The ADB explicitly links the downgrade to a contraction in the oil sector, which continues to weigh on overall economic activity.
The figures underline the importance of the energy sector for Azerbaijan's growth dynamics. While the country has continued to invest in non-oil industries, infrastructure, logistics and other sectors, changes in hydrocarbon production remain an important factor behind fluctuations in headline GDP growth.
For Baku, the challenge is therefore not simply to maintain economic activity, but to accelerate the expansion of sectors capable of compensating for weaker oil production.
This makes areas such as transport and logistics, renewable energy, manufacturing, digital services and non-oil exports increasingly important to Azerbaijan's medium-term growth outlook.
photo: getty images
Georgia: ADB Raises 2026 Forecast to 6.3%
Georgia presents a markedly different picture.
The ADB raised its 2026 growth forecast for Georgia to 6.3%, from 5.5% in July. The bank says economic activity has expanded faster than previously projected, with stronger momentum expected to continue into 2027.
At the same time, Georgia is facing rising inflationary pressures.
The ADB raised its 2026 inflation forecast for Georgia to 5.2%, citing higher fuel, transport and food prices. The country's policy rate has been increased to 8.25%.
This creates an important contrast: Georgia is recording stronger-than-expected economic growth, but part of that momentum is being accompanied by increased price pressures.
The country's performance also illustrates how services, domestic activity and its broader role in regional connectivity can support growth even as external energy shocks create new risks.
photo: EUReflect
Armenia: Growth Remains at 5.0%
Armenia occupies an intermediate position in the ADB's latest forecast.
The bank maintained its 2026 growth forecast at 5.0%, while the economy is projected to expand by 5.5% in 2027. The 2026 figure is unchanged from the July outlook.
The ADB notes that price pressures have intensified in Armenia compared with 2025, reflecting the broader regional impact of higher energy and food costs.
The Armenian economy therefore continues to grow at a relatively solid pace, but it is also operating in an environment in which external energy and food price shocks could affect domestic demand and inflation.
Three Economies, Three Different Trajectories
The latest ADB numbers present a clear picture:
| Economy | 2026 GDP growth | 2027 GDP growth | Change in 2026 forecast |
| Azerbaijan | 1.6% | ~1.8% | Down from 2.0% |
| Armenia | 5.0% | 5.5% | Unchanged |
| Georgia | 6.3% | - | Up from 5.5% |
Source: Asian Development Outlook, September 2026.
The numbers show that there is no single economic story for the South Caucasus.
Azerbaijan's growth is being constrained primarily by weaker oil sector performance. Armenia is maintaining a 5% growth trajectory, while Georgia has exceeded earlier expectations and received the largest upward revision among the three.
Energy Prices Remain A Regional Risk
The differences between the three economies should not obscure a common vulnerability: all three are being affected by the broader energy and commodity shock.
The ADB says higher fuel and food prices and energy-related cost pressures remain the main drivers of inflation across the wider Caucasus and Central and West Asia region.
The bank has raised its inflation forecast for the wider subregion to 23.1% in 2026, from 22.0% in the July forecast, and to 17.6% in 2027, from 16.3% previously.
These figures are heavily influenced by economies outside the South Caucasus, particularly countries experiencing much higher inflation. They should therefore not be interpreted as the inflation rate of Azerbaijan, Armenia or Georgia individually.
Nevertheless, the direction of the revision is significant: energy and food costs remain an important source of pressure across the region.
Why the South Caucasus Matters Beyond Its Size
The economic performance of Azerbaijan, Armenia and Georgia is increasingly connected to the region's changing role in Eurasian trade and energy.
The South Caucasus sits between the Caspian Sea, Türkiye, Russia, Iran and Europe and has become increasingly important for transport corridors, energy infrastructure and regional connectivity.
For Azerbaijan, this includes the development of the Middle Corridor, expansion of transport links and the country's role as an energy supplier to European markets.
For Georgia, transport infrastructure, transit activity and its position between the Black Sea and the Caspian region remain important elements of its economic model.
For Armenia, the opening and development of new regional connectivity routes could potentially create additional opportunities for trade, logistics and investment.
Against this background, economic growth figures tell only part of the story. The more important question for the region is whether today's investment in connectivity, energy diversification and non-resource sectors can translate into sustainable growth over the coming years.
A Wider Asian Picture
The ADB's September outlook forecasts growth in developing Asia and the Pacific at 5.0% in 2026 and 5.1% in 2027, down from 5.5% in 2025. The bank identifies prolonged energy market disruption, geopolitical tensions and a potentially strong El Niño as major risks to the outlook.
Against this backdrop, the South Caucasus is entering the next phase of its economic development from very different starting points.
Georgia is accelerating faster than previously expected. Armenia is maintaining a 5% growth trajectory. Azerbaijan, meanwhile, is seeing its forecast reduced as lower oil sector output weighs on overall economic expansion.
The key issue for all three economies will be how effectively they can adapt to a global environment in which energy prices, trade routes and geopolitical risks are increasingly interconnected.
For Azerbaijan in particular, the latest ADB forecast reinforces the importance of the country's long-term effort to reduce its dependence on hydrocarbon-driven growth and strengthen the non-oil economy.
The South Caucasus is therefore not facing one common economic trend. It is becoming a region of increasingly different growth models, and the latest ADB forecast makes that divergence visible in the numbers.
