In Georgia, the real gross domestic product (GDP) growth rate in August amounted to 10.5% y/y, and 10.3% y/y in January-August. Economic activity has been stronger than expected with real GDP growth at 10.5% y/y in the first half of 2022. This growth has been driven by transportation, energy, hotels and restaurants, and industry. Construction permits increased by 15.6% during the first half of 2022 y/y, suggesting a recovery in domestic investment.
The International Monetary Fund (IMF) has dramatically increased its forecast for Georgian growth from 3.2% to 9% for this year as “expected negative effects of the war in Ukraine have not materialised so far”.
At the end of a mission to Georgia from September 8-14, the IMF issued a press release on September 15 that reported that, “despite a challenging external environment, the Georgian economy is set to achieve strong growth and buoyant fiscal revenues this year”.
The IMF based the huge growth revision on a faster-than-expected recovery of tourism, a surge in inbound money transfers, and immigration-related flows that have helped strengthen the external position and sustain domestic demand. However, IMF also urged that there are notable downside risks including a sharper slowdown in major trading partners, tighter global financial conditions, possible weakening of tourism and other external inflows, and sustained high commodity prices.
The World Bank upgraded its forecasts for Georgia on account of the strong performance recorded during 2022, with growth projected to reach 8.8% by the end of 2022.
Inflation is expected to remain in double digits in 2022, although price pressures are likely to diminish towards the end of the year. Inflation is expected to decline in 2023 and beyond, as international oil prices and supply-side bottlenecks ease.
Georgia’s inflation rose slightly to 11.5% y/y in September. Higher food and energy prices (as well as utility costs) account for most of the inflation this year. According to high-frequency surveys from May 2022, about three-quarters of the respondents from low-income households reported having reduced food consumption in response to rising prices.
The National Bank of Georgia (NBG) has kept the monetary policy rate unchanged since March, at 11%, following a meeting of its monetary policy committee on October 26, after gradually increasing the rate since March 2021 by a total of 300 bps. The bank said domestic inflationary pressure was still high despite the fact that inflation had retreated from its earlier peak.
The unemployment in Georgia fell to 18% in Q2, according to Geostat. The number of hired employed increased by over 4.4%, reaching 867,900 individuals.
In trade and transport related news, 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. Money inflows could last longer than initially expected, and Georgia could benefit from some trade diversion as transport corridors are reconfigured. Over the past months, the Georgian railway and ports in Poti and Batumi have reported rising freight flow, while long lines of international trucks at Georgian borders have become one of the most noticeable effects of the Ukraine war in Georgia.
Prime Minister Irakli Garibashvili said the profit of Georgian Railways had hit a "record high" of GEL161mn ($59 mn) in the first half of the year. During the August 15 cabinet meeting, the prime minister announced that the increased freight traffic through Georgia had increased revenues for the company.
Georgian external trade turnover for January-September amounted to $13.61bn, which is an increase of 35.3% y/y. At the same time, the value of exports rose by 37.4%, equaling $4.09bn in the reported period. Imports also grew by 34.4%, amounting to $9.51bn. Georgia’s trade deficit stood at $5.4bn in January-September.
Foreign direct investment in Georgia amounted to $351.8mn in Q2, a 9.1% y/y. According to the statistics service, the expansion is mostly due to a rise in allowed capital and reinvestment indicators.
The United Kingdom ranks first in terms of investment in the country, with $64.7mn. The largest share of foreign direct investment was $76.6mn, which fell on the energy sector.
The number of international visitors to Georgia rose by 157.5% in September compared to the same period last year. International tourist visits to Georgia between January and September of this year have marked a 67.8% recovery from pre-pandemic levels in 2019, Deputy Economy Minister Mariam Kvrivishvili said on October 4. Positive trends were also observed in the recovery of revenues from international tourism. A 94.6 % recovery was recorded in January-August 2022 from the same period in 2019, and revenues reached $2.1bn.
The volume of money transfers to Georgia from abroad constituted $387.2mn (GEL 1.1bn) in September 2022, which is 84.6% ($177.4mn) more than transfers for the same period in 2021, reports Georgia’s central bank. The largest source of money transfers was Russia, from which nearly half ($173.9mn) of total transfers to Georgia flowed, and witnessed an annual growth of 351%. The spike in financial flows can be attributed to the flow of migrants from Russia who have found at least temporary shelter in Georgia from the consequences of the Ukraine war. The macroeconomic impact made by financial flows of such a magnitude cannot be ignored. It should be seen in retail sales, GDP growth and exchange rate.
Georgian plans to reduce its foreign debt to 40% of gross domestic product (GDP), PM Garibashvili said during the cabinet meeting on September 13. The budget deficit is also expected to go down to 3.2% of GDP, because of the country's "unprecedented, double-digit" growth, Garibashvili said during the cabinet meeting on September 13. The initial budget draft envisaged a budget deficit of 4.4% of GDP and a foreign debt of 51% of GDP.
Georgia’s banking sector indicators remain healthy. Total assets of Georgian commercial banks increased by 0.2% and constituted GEL 68.1bn ($24.76bn) as of the end of September.
Georgian commercial banks' financial reports indicate that 14 banks in the country together earned a net profit of GEL836mn ($285mn) in the first half of 2022. According to the Banking Association of Georgia, 95% of these profits were attributed to the country's two largest banks, TBC and Bank of Georgia. In 1H22, the banks received interest income of GEL2.7bn ($919mn), most of which stemmed directly from loans made to citizens and businesses.
On the political front, Georgia’s ruling political party Georgian Dream has announced on October 26 plans to initiate anti-corruption reforms and the country’s judiciary in line with the European Commission’s 12 recommendations for EU candidate status.
President Volodymyr Zelenskiy of Ukraine on October 19 signed an order that placed sanctions on members of Ivanishvili’s family. Previously, Ukraine's anti-corruption agency argued that the founder of Georgia Dream and former prime minister Ivanishvili should be sanctioned for his alleged ties to Russia's war against Ukraine.
Back in September, EU foreign policy chief Josep Borrell said that Georgia needs to accelerate reforms in areas such as the rule of law, the independence of justice, and media freedom before it can be granted the status of a European Union membership candidate.
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