CAREC Institute’s Quarterly Economic Monitor No. 20
The CAREC Institute has published its latest Quarterly Economic Monitor. Main conclusion about the region’s economic performance in 2025 and the beginning of 2026: The CAREC region maintains steady real GDP growth despite persistent external shocks and inflationary pressures.
Global commodity prices surged in March 2026 amid escalating geopolitical conflict in the Middle East, with energy and fertilizer prices rising sharply, while gold prices stayed high, although they moderated from earlier peaks. According to statistics, the conflict has not yet fully materialized in the output development of the region. The CAREC region continued to grow at an average rate above 6.0% in 2025 and at the beginning of 2026. Services and industry were the main drivers of this growth, which was mostly supported by manufacturing, construction and financial activities.
As geopolitical disruptions from the Middle East have begun to impact the region, food and fuel prices are emerging as the principal contributors, particularly in import-dependent economies. Meanwhile, high domestic demand, rapid credit growth and rising wages， together with adjustments to utility tariffs， sustained underlying domestic pressures on inflation. In general, inflation in the CAREC region remains above central bank targets, with average inflation remaining steady at around 6.5% (yoy). Inflation accelerated sharply in the Kyrgyz Republic, Mongolia and Pakistan in March 2026 and stayed elevated, although it eased somewhat in Kazakhstan and Uzbekistan. Inflation stayed low or moderate in the PRC, Azerbaijan, Georgia and Tajikistan. The monetary policy stance on average stayed unchanged but diverged in the first quarter of 2026: the National Bank of the Kyrgyz Republic raised its policy rate, while central banks in Tajikistan and Azerbaijan cut rates to support growth.
Trade performance across the CAREC region was uneven. Statistics from early 2026 show that economies exporting gold and mineral products continued benefiting from high prices and strong external demand, while strong domestic demand drove import growth across the region. Intra-CAREC trade strengthened modestly. Current account balances improved across the region in 2025, with oil exporters facing narrowing surpluses or widening deficits, while gold exporters and remittance-receiving countries showed stronger external positions. The PRC stands out as both the region’s main trading partner and leading investor. FDI flows to landlocked CAREC economies contracted sharply due to persistent structural barriers, including high transport costs and institutional constraints.
The ongoing Middle East conflict poses downside risks in the near future because rising energy costs and supply chain disruptions may exacerbate inflation and put stress on external balances. According to forecasts of international financial institutions, growth in the CAREC region is expected to moderate in the medium term due to higher food and commodity prices, weaker domestic demand and weaker business activity. Institutional barriers remain a key structural challenge facing the CAREC region. Near-term priorities include managing inflation and supporting growth through coordinated policies, while longer-term goals center on accelerating the renewable energy transition, diversifying economies beyond resource sectors, strengthening financial buffers, and deepening regional connectivity.