CAREC Institute’s Quarterly Economic Monitor No. 19
The CAREC Institute has published its latest Quarterly Economic Monitor. Main conclusion about the region’s economic performance in 2025: Resilient growth amid divergent inflation pressures and trade patterns sets the stage for a moderating outlook.
In 2025, the CAREC region sustained resilient economic growth, with average GDP expansion estimated at 5.6%. This strong performance was achieved despite heightened global uncertainty and was underpinned by robust domestic demand, continued public and private investment, and selective gains from commodity and services exports. However, the composition of growth increasingly reflects demand-led and externally contingent dynamics, raising questions about its durability as global conditions normalize.
Growth performance across the region remained uneven. Fast-growing economies such as the Kyrgyz Republic, Tajikistan, Georgia, Kazakhstan, and Uzbekistan expanded above the regional average, largely supported by construction activity, services expansion, and strong consumption. In contrast, Pakistan, Afghanistan, and Azerbaijan recorded slower growth due to sector-specific constraints, most notably in extractive industries. Mongolia and the PRC provided a stabilizing anchor to regional growth, while agriculture rebounded sharply in Mongolia following weather-related disruptions in the previous year.
Inflationary pressures moderated toward the end of 2025, with average consumer price inflation easing to around 5.8% year on year. This disinflation was largely policy-driven, reflecting tighter monetary conditions in economies with elevated inflation, including Kazakhstan, the Kyrgyz Republic, Mongolia, and Uzbekistan. At the same time, inflation accelerated in Afghanistan, Azerbaijan, Georgia, and Pakistan, pulling the regional average above the median. Persistent domestic demand pressures remained evident in continued rapid broad money growth, particularly in the Kyrgyz Republic, where strong expansion of consumer and mortgage lending boosted demand and contributed to rising inflation.
External balances weakened for several commodity exporters amid softer global energy prices, while precious metals exporters benefited from strong gold demand. Regional trade remained exposed to global commodity price fluctuations but also showed signs of reshaping and deeper integration. Oil and gas exporters experienced shrinking surpluses, while gold exporters saw improvements. The PRC recorded a record-high surplus driven by high-technology manufacturing exports. Azerbaijan and Georgia strengthened their roles as transit hubs, supported by improvements in cross-border infrastructure. The PRC remained the largest source of foreign direct investment to the region, although FDI inflows to landlocked CAREC economies contracted sharply in 2024.
Looking ahead, regional growth is projected to moderate to 4.6% in 2026 and 4.5% in 2027. This slowdown reflects diminishing returns from domestic-demand-led expansion, tighter financial conditions, and softer external demand. Sustaining growth will require structural vulnerabilities, including over-reliance on remittances and specific commodities, as well as accelerating export diversification and productivity-enhancing reforms.