New Country Reports market report from Business Monitor International: "Caucasus Business Forecast Report Q1 2013"

Boston, MA -- (SBWire) -- 12/26/2012 --Core Views We are no longer confident that a military conflict between Azerbaijan and Armenia over the breakaway Nagorno-Karabakh region can be averted, as the number of violent clashes continues to mount at a time of intensifying diplomatic confrontation. We no longer consider the unresolved standoff to be a 'frozen conflict' and have therefore downgraded both Azerbaijan's and Armenia's 'security/external threats' profile in our short-term political risk ratings. Armenia's economy is entering a less certain environment and despite our near-term upward revision to real GDP growth, the economy is beginning to face considerable headwinds over a medium-term time horizon. Challenges are stemming from a potential drying up of multilateral funding in the event of further escalation in the eurozone sovereign debt crisis, as well as the risk of a more pronounced slowdown in economic growth in Russia, as commodity prices ? particularly of oil ? remain highly exposed to global investor risk aversion and falling demand in developed markets. Georgia's ruling United National Movement party of President Mikhail Saakashvili remains the favourite to win in October's parliamentary election and secure another majority. Although the new opposition movement Georgian Dream remains a credible threat to the ruling party, we believe that the appointment of the former interior minister as prime minister and a shift in strategy in dealing with the opposition should improve the government's chances of retaining control of the legislature. Major Forecast Changes We have raised our 2012 real GDP growth forecast for Armenia to 4.3% from 2.1% previously, on account of signs of a more robust household sector, as well as a slight increase to our previous exports of goods and services growth projection. Key Risk To Outlook While a deteriorating global economic environment threatens to weigh heavily on exports as well as fixed investment and household consumption levels to a greater extent than we are currently factoring into our already subdued forecasts for Armenia, the single-biggest downside risk to our outlook is the prospect of a war between Armenia and Azerbaijan. We believe that near-term risks to our outlook for Georgia's economy are currently skewed to the upside, as ongoing monetary easing and signs of robust activity in the manufacturing and wholesale and retail trade sector could see another quarter or two of strong growth. We would await the release of a breakdown of GDP by categories of use (ie expenditure) before we would consider making adjustments to our 2012 real growth forecasts. Executive Summary Business

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