Page 16 - GEORptDec21

EBRD revives upwards Georgian GDP growth forecast to 7.5%
Moody’s expects Georgian economy to grow 7.3% in 2021
Georgia’s economy looks set to grow by 7.5% this year, fully reversing the 6.2% contraction seen in 2020, the European Bank for Reconstruction and Development (EBRD) has estimated, revising upwards its forecast by 3.0pp compared to its last projection in June.
For 2022, the EBRD projects a robust 5.5% of growth.
Downside risks are associated with possible pandemic travel restrictions and political volatility, in addition to the effectiveness of the rollout of coronavirus vaccines - which is a more general concern for the category of low and medium-income countries.
Cumulative GDP growth in the period of January to August was 12% y/y, even though tourism, the main driver of growth in recent years, remains far below pre-pandemic levels, the EBRD pointed out.
The internal and external balances of Georgia have been under high pressure recently with inflation surging and the current account widening on scarcer tourism revenues.
Inflationary pressures have been increasing since the beginning of the year and the rate of inflation reached 12.3% y/y in September on the back of higher international food and oil prices and the pass-through of last year’s depreciation.
The National Bank of Georgia has reacted by increasing the refinancing rate three times in 2021 by a cumulative 2pp, to 10% by August.
Georgia’s current account deficit has widened this year with the increased export of goods and remittances only partially balancing out against the increased imports of goods and low level of exports of services (especially tourism revenues).
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. “The recovery is underpinned by fiscal policy support to consumption in 2021 and signs of a steady rebound in regional tourism. Remittances and non-tourism exports, such as beverages, vehicles and machinery and equipment, have also demonstrated robust growth," said Moody's.
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, further increases in exports to more diversified markets including Europe, partly reflecting additions to Georgia's free trade agreements, and rising incomes supporting consumer spending.
Moody's expected inflation to fall towards the National Bank of Georgia's (NBG) inflation target of 3% from 12.8% currently after temporary factors fade and tight monetary policy offsets commodity price and international supply constraint pressures.
“The current account deficit will also begin to narrow from a peak of 12.5% of GDP in 2020 towards pre-pandemic levels of around 5%, as remittances and non-tourism exports grow solidly and the longer-term benefits of reforms are realized, including reform of the pension system to build domestic savings," said the ratings agency.
To note, Moody's lately affirmed the government of Georgia's Ba2 local and foreign currency long-term issuer ratings and foreign currency senior unsecured rating. The outlook remained stable.
16 GEORGIA Country Report December 2021 www.intellinews.com