Georgia's economy expanded 12.0% year-on-year in the first eight months of 2021, compared with a 5.6% drop in the year-earlier period, preliminary government data showed on September 30. The gain came as the ex-Soviet republic recovered from the pandemic's fallout.
The country’s estimated real GDP growth rate in Q2 amounted to 29.9% y/y to total GEL 15.91bn, according to the national statistics office Geostat. Q2 2021 saw growth, year on year, in almost all sectors. Significant contributions were observed in wholesale and retail trade; manufacturing; arts, entertainment and recreation; transport and logistics; construction; accommodation and meals; and financial and insurance activities. The Georgian economy shrunk by 6.2% in 2020.
The government of Georgia has revised upward its forecast for this year’s economic growth from 7.7% to 9.5%, while it expects 6% growth next year, according to the 2022 budget planning quoted by BusinessPressNews.ge.
Global ratings agency Moody's Investors Service expects the Georgian economy to grow by 7.3% in 2021, following a 6.2% contraction in 2020, underpinned by fiscal policy support to consumption in 2021 and signs of steady rebound in regional tourism. Moody's expected growth to be at a potential 4-5% in the next few years, driven by increased investment in productivity-enhancing infrastructure in agriculture and manufacturing.
The International Monetary Fund (IMF) projects the Georgian economy to grow 7.7% in 2021 and 5.8% in 2022, reads the latest WEO report, titled World Economic Outlook: Recovery During a Pandemic.
With these indicators, Georgia will have one of the highest economic growth rates in the region of the Middle East and Central Asia.
The Fund expects the economic rebound to help the government bring public debt down from over 60% of GDP to 55.3% of GDP at the end of the year, compared to a slight deterioration (60.8% of GDP) envisaged under the previous forecast in April.
Robust growth in remittances and exports, and early signs of a faster than expected rebound in tourism have supported the recovery and should contribute to a narrowing of the current account deficit (to 9.9% of GDP) compared to its elevated 2020 level, according to the IMF.
The recovery in tourism strengthened in September 2021, with tourist arrivals (overnight stays) recovering to 39% of the September 2019 level, up from an average 33% recovery during June-August 2021. Notably, tourism revenues recovered faster than arrivals in September like in previous months, hitting 50.8% of September 2019 level.
Significant downside risks remain and contribute to an outlook that is more uncertain than usual, the Fund acknowledged, urging Georgia to increase its coronavirus vaccination rate.
Georgian health officials are alarmed and concerned by the recent low vaccination rate that would lead to a high number of deaths when the new wave of the virus started. According to data from Worldometer, Georgia ranks 13th worldwide in COVID-19 deaths per million over the past week with 62/mn, behind only Armenia, Romania, Bulgaria and a handful of Caribbean nations.
Georgia’s annual inflation eases to 12.3% y/y in September after eight months of gains. The driving forces of high inflation was mainly a result of one-off factors, such as significant increases in prices of food and oil on international markets. Annual PPI for industrial goods was 16.8% in August 2021, up from 16.4% in previous month, according to Geostat.
The Monetary Policy Committee of the National Bank of Georgia (NBG) on October 27 kept its key refinancing rate unchanged at 10% for a second time in a row, after raising it by 0.5% to its highest level in 13 years in August. NBG stressed that it is keeping the monetary policy stance tight, as increased inflation remains a challenge for Georgia. Noting that consumer prices increased by 12.3% in September, the NBG said it expected inflation to remain high through February 2022.
The Georgian banking sector saw monthly net profit surge 2.4x y/y and 31% m/m in August, as strong growth in core revenue was combined with the second-largest monthly reversal in loan loss provisions this year.
The aggregated net profit of Georgia's banks more than doubled in June compared to the previous year, to Georgian lari (GEL) 295mn ($92mn) - it amounted to the biggest profit ever recorded by the banks in the country’s history. The banking system remains adequately capitalised and liquid, the International Monetary Fund (IMF) said in its Concluding Remarks after Article IV Consultations with the country. 2Q21 earnings for the two largest banks- TBC and Bank of Georgia - saw robust growth driven by a solid operating performance.
On the trade front, the central bank took note of some positive developments including a 24% annual increase in exports in January-September – 9% higher year on year. It also cited 22% growth in imports, against the backdrop of increased domestic demand in the country. Overall, in 9M21, the trade deficit was up by 19.9% y/y (down 0.5% vs 9M19) to $4.0bn, as economic recovery and higher world commodity prices boosted imports, while exports were also solid.
Foreign direct investment (FDI) in Georgia amounted to $234.2mn in the second quarter of 2021, marking a 2.6% y/y decrease.The figure represented a recovery in relative terms from Q1, when FDI was down a whopping 28% y/y.
On the political front, thousands of people gathered in the centre of the Georgian capital on October 14 demanding the release of jailed former Georgian President Mikheil Saakashvili, whose detention earlier this month deepened a protracted political crisis in the South Caucasus country. The pro-Western politician, who declared a hunger strike on October 1, was arrested after returning to Georgia, having lived abroad for years.
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