Georgia Country Report Jul22 - July , 2022

July 4, 2022

Georgia’s economy expanded by 2.6% y/y in April, according to the national statistics office Geostat. GDP growth was observed in transportation and storage, hotels and restaurants, electricity, gas, steam and air conditioning supply, financial and insurance activities, arts, entertainment and recreation and mining and quarrying. Declines were seen in construction, manufacturing, professional services, scientific and technical activities and trade.

Geostat also stated that 6,894 new businesses were registered in April, up 41.4% y/y, while exports of goods in January-April were valued at $1.5bn, up 32.8% y/y.

Georgia's real GDP grew by 10.4% in 2021, according to Geostat on March 21. Last year, GDP at current prices amounted to GEL60.2bn ($18.7bn), which is 22.3% higher than the corresponding figure for 2020.

The World Bank in its June issue of ‘Global Economic Prospects’ has revised its GDP growth forecast for Georgia for 2022 upwards from 2.5% to 5.5%. The Georgian economy has shown resilience to the economic shock induced by the Russian invasion of Ukraine so far, driven by the strength of the services sector, particularly in tourism, with a strong recovery in the year through May.

The International Monetary Fund (IMF) previously said that Georgia’s spillovers from the war and sanctions are expected to lower Georgia’s growth to around 3% in 2022, raise inflation, and widen the current account deficit. The outlook is subject to a higher-than-usual level of uncertainty. Georgia’s economy has proven resilient in the past, and with the support of policies under the authorities’ programme. IMF expects growth to pick up in 2023 and other key indicators to strengthen as well.

Georgian Prime Minister Irakli Garibashvili tried to put a brave face on Georgia's failure to secure EU candidate status from Brussels, saying that the country would work towards being given the status. Georgia was not granted candidate status at the European Council at the June 23-24 summit - while allowing Ukraine and Moldova to go forward - because of the country’s democratic deficits. The European Commission said Georgia must first fulfill a number of conditions only after which can it receive candidate status.

Irakli Garibashvili used his annual report to parliament on 22 June to lambast the opposition and to criticise the European Council for not granting the country candidate status. Garibashvili explained that "Moldova and Ukraine have an absolutely identical record in connection with the prospect" and claimed that it was because of the war that these two countries received candidature as 'prepayment'.

In trade related news, the Georgian government will ban the export of wheat and barley for a year starting from July 4, 2022. The reason is to ensure food security on the domestic market given the Russian invasion of Ukraine, according to Minister of Environment and Agriculture Otar Shamugia.

The Trans-Caspian International Transport Route (TITR) is gaining importance as trade through its member states is growing amid the necessity for more trade route volume that bypasses heavily sanctioned Russia.

Georgia's trade deficit hit $2.7bn in the first five months of 2022, according to preliminary data of the National Statistics Service of Georgia (Geostat), which was published on June 20.
Compared to the corresponding period of the previous year, Georgia's foreign trade increased by 37.4% and amounted to $6.93bn in January-May. During the reporting period, exports increased by 37.5% to $2.11bn, while imports increased by 37.3% to $4.82bn. The negative trade balance was equal to 39.1% of the total foreign trade turnover.

Foreign direct investment in Georgia in the first quarter of 2022 amounted to $568.2mn, which is $435.7mn more than in the same period last year, the National Statistics Agency reported, citing preliminary data. Thus, the figure increased by 4.3 times. Spain was the top contributor to FDI, followed by the United Kingdom.

The Georgian government has changed its inflation forecast for the current year; now it is expected at 9.1% according to the press service of the Cabinet of Ministers of Georgia. This is twice as high as the forecast when approving the state budget for 2022 – 4.5%. According to the updated forecast, inflation will return to the target in 2023.

According to the National Bank, inflation in the second quarter of 2022 will average 10.5%, in the third quarter it will slow down to 7.85%, and in the fourth to 7%. Georgian inflation hit 12.8% in April, according to the data of the National Statistical Service of Georgia, which was published on May 3. Compared to the previous month, consumer prices rose by 1.8%.

The Monetary Policy Committee of the National Bank of Georgia (NBG) at its meeting on June 22 left the refinancing rate unchanged at 11%. In its decision, the NBG said that "high inflation and inflationary risks remain an urgent global challenge". The bank said sanctions imposed on Russia in response to aggression against Ukraine and delays in deliveries, as well as sharp restrictions on exports from Ukraine due to the war, have significantly increased prices for food, raw materials and energy on world markets.

On the political front, Georgian Dream party MPs Sozar Subari, Mikheil Kavelashvili and Dimitri Khundadze resigned the party and parliament at the end of the majority meeting on 28 June. According to the former MPs, “there are great powers” who want to organise a revolution in Georgia, “change the government elected by the people” and replace it with people who “are directly responsible for the numerous crimes committed in 2004-2012”, hinting at the opposition United National Movement (UNM).

Citizens of Georgia flocked onto Tbilisi's streets and Rustaveli Avenue again in a pro-EU rally and to protest against the Georgian Dream party. Organisers of a pro-European rally in front of parliament on June 24 gave Prime Minister Irakli Garibashvili and his government a week to resign. Organisers announced that the next rally would take place on July 3, noting that if the demonstrators' demands were not met, "we will not disperse until the oligarchy disintegrates".

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