The World Bank and the International Monetary Fund have delivered a more cautious message on Central Asia and the South Caucasus: while the two regions are still growing, the period of unusually strong post-2022 expansion is beginning to fade. The World Bank expects Central Asia’s average growth to slow from around 7 percent in 2025 to 5.2 percent in 2026 and 4.7 percent in 2027, while the IMF projects the wider Caucasus and Central Asia region to decelerate from 6.2 percent in 2025 to about 4.8 percent in 2026. The headline looks technical, but the implications are geopolitical.

What is ending is not growth itself, but a specific cycle of windfall-driven expansion created by Russia’s war in Ukraine, sanctions-related trade rerouting, high migration flows, remittances, re-export activity, construction booms, and the first wave of Middle Corridor optimism. The slowdown, therefore, should not be read simply as a macroeconomic correction. It is a sign that the region is entering a phase of post-war adjustment. Since 2022, many Central Asian and Caucasus economies have benefited from exceptional external conditions. Russian capital, people, and businesses moved into Georgia, Armenia, Kazakhstan, and other regional economies. Trade flows were rerouted through Central Asia and the Caucasus as sanctions complicated Russia’s direct access to Western goods. Logistics companies, banks, real estate markets, service sectors, and consumer demand all benefited from this shock.

The World Bank’s April 2026 Europe and Central Asia Economic Update places the slowdown in a broader regional context. It expects growth in developing Europe and Central Asia to weaken to 2.1 percent in 2026, citing the impact of the Middle East conflict, geopolitical tensions, and trade fragmentation. It also warns that higher energy costs, uncertainty, and weaker investment will weigh on economic activity. This matters because Central Asia and the South Caucasus are deeply exposed to precisely these variables: energy prices, transport costs, commodity flows, remittances, currency volatility, and investor sentiment.

The IMF’s assessment is similarly cautious. Its April 2026 Regional Economic Outlook update argues that the Caucasus and Central Asia remain resilient but not immune. Growth in the region was stronger than expected in 2025, but the IMF attributes the projected slowdown to the effects of the war in Ukraine and new headwinds from the Middle East conflict. It also notes that inflation remains high and that fiscal outcomes will diverge between oil exporters and oil importers. Indeed, Kazakhstan, Azerbaijan, and Turkmenistan benefit from higher energy prices. For oil importers such as Armenia, Georgia, Kyrgyzstan, and Tajikistan, the situation is different. Higher fuel, fertilizer, and transport prices can quickly feed into inflation, external deficits, and social pressure.

The World Bank expects economic growth to remain high for the South Caucasus countries, though lower than what was recorded in 2025 and before. The changing geopolitical situation on the ground is a key cause of the slowdown. The South Caucasus and Central Asian states sit between Russia, China, Iran, Turkey, the European Union, and the Gulf. Their recent economic dynamism was partly driven by their value as intermediaries in a fragmented world economy. Azerbaijan and Georgia gained new strategic attention as parts of the Middle Corridor. Armenia’s economy was lifted by Russian migration and the relocation of the technology sector, while Uzbekistan and Kazakhstan benefited from investment interest as outside actors looked for alternatives to Russia-linked supply chains.

But this intermediary role carries both opportunity and vulnerability. The more these economies benefit from trade rerouting, the more exposed they become to sanctions enforcement mechanisms. Western governments have become more attentive to possible sanctions circumvention through Central Asia and the Caucasus. Russia, meanwhile, remains a major economic partner and security factor. China is expanding its trade and infrastructure presence, while Turkey is deepening its connectivity ambitions through the Turkic world and the South Caucasus.

In the South Caucasus, this plays out differently from country to country. Georgia’s post-2022 growth was powered by migration inflows, services, finance, construction, tourism, and its role as a transit and re-export platform. But as the World Bank notes, Georgia’s growth trend has already moderated from the 11 percent recorded in 2022 to a projected 5.5 percent by 2027, and the country’s changing geopolitics is critical to understanding this shift. A similar logic applies to Armenia, whose economy benefited from Russian relocation after 2022, especially in technology, services, and real estate. At the same time, Armenia is trying to reorient parts of its foreign policy away from excessive security dependence on Russia and toward closer relations with the EU, the United States, India, and other countries. The World Bank’s expectation that Armenian growth will ease from 7.2 percent in 2025 to 5.1 percent in 2027 suggests that the country is undergoing significant geopolitical change.

In contrast, Azerbaijan’s growth is expected to improve modestly, and the country’s advantage lies less in rapid GDP expansion than in its geopolitical positioning. Azerbaijan is now central to almost every major regional connectivity project: the Middle Corridor, Caspian energy flows, potential electricity links, Turkey-Central Asia connectivity, and possible post-conflict routes involving Armenia.

About the author: Emil Avdaliani is a professor of international relations at the European University in Tbilisi, Georgia, and a scholar of Silk Roads. He can be reached on Twitter/X at @emilavdaliani.