Georgia, the small South Caucasus country of 3.9mn, expanded by 5.3% y/y in the first quarter of 2018. The expansion was driven by a rise in activity in manufacturing, transport, real estate and trade, and “other community, social and personal service activities”. On the other hand, the sharpest decline was the agriculture sector.
The economy achieved 5% growth in 2017. The Georgian economy has bounced back from several years of slow growth across 2015-2016, when a depressed economic environment in the region and low oil prices indirectly impacted its performance. Multilateral development banks all expect the country's GDP growth to exceed 4% in the near-term, up from 2.7-2.8% in 2015-2016.
The growth spurt was prompted by a flurry of domestic and foreign investments in construction, retail, infrastructure and real estate amidst a recovery in consumption levels and an increase in inbound tourism. However, structural imbalances continue to plague Georgia's macroeconomy, most notably its large trade deficit, which is financed partly with external borrowing, and its unpredictable currency, the exchange rate of which has varied widely.
Georgia's foreign trade deficit inched upwards to $5.25bn in 2017, up from $5.18bn in 2016, and by 17.5% y/y to $1.34bn in the first quarter of 2018. Imports continue to dwarf exports, at $2.8218bn in April compared to exports of just $961.4mn.
Reducing the foreign trade and overall current account deficit has been an ongoing concern in Tbilisi. An oil and gas-importing country, Georgia has struggled to expand its manufacturing base enough to make up for its sizeable energy imports and for its imports of higher added-value goods.
Meanwhile, consumer prices grew 2.5% y/y in May, but remained flat on a month-on-month. The numbers are the lowest recorded monthly CPI levels seen in Georgia since December 2016. May’s inflation levels are well within the government's target rate of 5% for 2018.
On the political front, the Georgian parliament approved the appointment of a new government confirmed former acting finance minister Mamuka Bakhtadze as the prime minister by an overwhelming majority on June 20. Bakhtadze is taking over as prime minister Giorgi Kvirikashvili quit the post on June 13 citing disagreements over economic policy and “fundamental issues” with the leader of the ruling Georgian Dream party, Bidzina Ivanishvili, an ex-prime minister and richest in the country. Meanwhile, Georgian ex-president Mikheil Saakashvili has been sentenced to six years in prison in a case concerning the beating of an opposition member of parliament.
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