Boston, MA -- (SBWIRE) -- 09/15/2012 -- Core Views Despite plenty of room for Armenia's economy to recover following one of the most severe recessions in the world in 2009, we see few signs to indicate that the higher-than-expected growth rate in 2011 can be sustained into this year. We instead see growth settling at a more moderate trajectory over the coming years, especially with challenging global economic conditions and no signs of a recovery in fixed investment. Higher oil output capacity following major shutdowns last year will see Azerbaijan's economy return to some moderate strength in 2012. We also highlight that robust investment into non-oil fixed capital should continue to see the non-oil economy grow in significance. However, Azerbaijan's economic outlook will continue to be closely tied to its hydrocarbons sector for years to come, in the absence of major improvement with the country's business environment. The government led by Georgian President Mikheil Saakashvili looks well placed to secure a solid majority in the upcoming parliamentary election in October. However, despite broad-based approval of government policies on the economy and Saakashvili's long-standing pursuit of closer integration with the West, the recent revocation of opposition leader Bidzina Ivanishvili's Georgian citizenship by the president may cost the government dearly and undermine its standing both abroad and at home. Major Forecast Changes We have raised our 2012 real GDP growth forecast for Georgia from 1.1% previously to 5.4%, with trend growth now expected to settle at 5.0% through to 2016, which compares favourably with the 4.8% average annual growth rate recorded in the five years to 2011. Key Risks To Outlook We would view any further intensification in confrontational rhetoric between Baku and Yerevan as a firmly negative signal for both countries' economic outlook. The risks to the downside would intensify accordingly, and the risk of disruptions to Azerbaijan's oil output capabilities could prompt a sharp downward revision of our economic growth trajectory for years to come. A deterioration in global economic conditions, stemming from the eurozone recession and ongoing sovereign debt crisis, as well as a slowdown in economic activity, would leave the Armenian economy highly vulnerable to another correction, considering its high reliance on exports, remittances and credit availability. However, with fixed investments still declining, we note that the Armenian economy is a long way from its pre-2009 levels and thus may not have much further to go on the downside, even in light of a more challenging external environment. Despite our latest upgrade to our 2012 real GDP growth forecast for Georgia to 5.4%, we note that risks remain skewed to the downside. Georgia's economic fortunes remain closely tied to the state of the global economy, and mixed data releases out of the US, and continuing concerns over the eurozone sovereign debt crisis have been providing renewed cause for concern on thi

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