Page 5 - GEORptJul20

1.0 ​Executive summary
The economic decline in Georgia this year will be in the range of 3%-6%, investment bank Renaissance Capital has said after assessing the impact of the coronavirus (COVID-19) crisis on the country’s economy. However, it stated that the rate of decline would depend on the size of the second wave of COVID-19 that hits the country.
Regular international flights to Georgia will not resume before July 31, the Georgian Civil Aviation Agency announced on June 25. ​Georgia was planning to once more accept international flights and thus open up to foreign tourism on July 1, but such hopes have been dashed with the spread of the coronavirus (COVID-19) pandemic failing to diminish globally in line with hopes and expectations. The country has lifted most of its restrictions imposed to contain the spread of COVID-19 in June. It has re-opened shops, hotels, restaurants and cafes, while restoring public and inter-city transportation. Hotel owners and tour operators remain, however, pessimistic about the outlook for the nation’s tourism industry this summer.
The decision to delay international regular flights for a month will wipe out most of Georgia’s potential for the receipt of international tourists. This is no small matter as foreign tourism usually directly and indirectly accounts for one-fifth of its economy.
Georgia's economy is set to shrink by 4.8% in 2020, according to the World Bank’s recently updated Global Economic Prospects report.​ The direct and indirect contribution of tourism to Georgia’s GDP is estimated by the World Bank at around 26%, of which 14pp is indirect.
Besides the expected drop in remittances, ​the hit from the loss of tourism is set to result in the current account deficit of Georgia doubling from 5% of GDP last year to 10% of GDP in 2020.​ The local currency of the country has come under pressure during the coronavirus crisis with investors anticipating a much wider current account gap, but the central bank intervened and the government secured significant inflows from international financial institutions that go towards stabilising the balance of payments.
With key parliamentary elections in October, Georgia’s government cannot risk a coronavirus (COVID-19) epidemiological deterioration that would go down badly with the electorate, while keeping the borders closed could equally expose it to criticism from the opposition for deep impacts on the economy.
As regards monetary policy, Renaissance Capital predicted that by the end of the year, Georgia’s central bank would continue to reduce its refinancing rate. The National Bank of Georgia (NBG) has cut its refinancing rate by 25bp to 8.25%​ in a visible attempt at balancing the deterioration in Georgia’s current account outlook.
Periodic currency interventions by the national lender would continue, it added. The central bank has emphasised that its monetary policy will remain tight in order to reduce inflationary expectations and return the inflation target to 3% in the first half of 2021.
5​ GEORGIA Country Report ​July 2020 ​ ​www.intellinews.com