S&P analyzes impact of potential Russia-Ukraine peace deal on South Caucasus, Central Asia

International rating agency S&P Global Ratings has released its forecast on the potential economic impact of a Russia-Ukraine peace treaty on Central Asia and the South Caucasus, including Azerbaijan.

According to the agency, while a ceasefire could ease geopolitical tensions, it is not expected to trigger an immediate and significant inflow of migrants, investments, or capital back to Russia. As a result, economic volatility in the region is likely to remain limited.

S&P projects that the trend of positive economic growth in the South Caucasus and Central Asia will continue. “The arrival of migrants and entrepreneurs in Central Asia and the South Caucasus has spurred the development of industries such as information and communications technology (ICT), logistics, financial services, tourism, and trade. For example, thousands of new businesses owned by Russian citizens have been registered in Georgia since 2022," the agency stated.

Citing data from Halyk Finance, S&P highlighted that the number of Russian-origin companies in Kazakhstan’s ICT sector has increased sevenfold since 2021. As of early 2024, these businesses accounted for 75% of the sector. The agency further noted that even if a ceasefire is reached, many Russian-owned enterprises will likely continue their operations abroad due to prolonged geopolitical uncertainty. “Political and economic ties between Russia and neighboring countries will persist, which will keep businesses from returning en masse,” the report emphasized.

S&P also outlined its economic growth expectations, noting that the current forecasts already account for a shift from the rapid expansion observed in 2022 to more moderate growth levels. “We expect real GDP growth in the South Caucasus and Central Asia to slow in 2025-2027 compared to 2022-2024. While economic growth in Georgia and Armenia amounted to 9.4% and 8.8% in 2022-2024, respectively, it will almost halve in the next three years but still remain stable.”

For Azerbaijan, S&P projects real economic growth at 2% for the 2025-2027 period, reflecting a more tempered pace compared to previous years.