Georgia Country Report Mar18 - March, 2018

March 3, 2018

Georgia, the small South Caucasus country of 3.9mn, grew by 4.4% y/y in January, down from 4.8% in December and 5.2% y/y in January 2017. Overall, the economy achieved 4.8% growth in 2017. The Georgian economy appears to have recovered 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 has been 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.

Meanwhile, consumer prices decreased to 4.3% y/y in January, down from 6.7% y/y in December. The Georgian government and regulators have been making efforts to slow down inflation to a maximum of 5% y/y.

Georgia's foreign trade deficit inched upwards to $5.25bn in 2017, up from $5.18bn in 2016, and by 14% y/y to $371.3mn in January. Despite the fact that exports grew faster than imports, the latter are larger in absolute terms, therefore smaller relative increases can result in bigger trade deficits.

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 basis enough to make up for its sizeable energy imports and for its imports of higher added-value goods.

On the political front, Georgia has drawn an avalanche of international criticism against the sentencing of an Azerbaijani journalist to six years in prison for alleged smuggling and illegal border crossing. The case of Afgan Mukhtarli, who was kidnapped in May 2017 from Georgia, where he had sought exile, only to resurface in an Azerbaijani jail the next day, has prompted an outcry against Baku's human rights violations and its underhanded means used in targeting government critics. Meanwhile, Ukraine’s would-be opposition leader and ex-Georgian president Mikheil Saakashvili was deported from Ukraine to Poland on February 12.

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