Page 5 - GEORptOct20
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1.0 Executive summary
While it is widely seen as having successfully addressed the pandemic to date, Georgia faces a sharp plunge in international tourism revenues and subdued external demand. Georgia’s GDP contracted by a real 12.3% y/y in Q2, while in nominal terms it reached Georgian lari (GEL) 11.21bn ($3.6bn), according to the statistics office Geostat. The country’s economy thus posted a modest 2.2% y/y advance in Q1 but suffered a 5.8% y/y contraction in H1.
The Asian Development Bank (ADB) has issued a September update of its GDP expectations for countries including the South Caucasus trio, Azerbaijan, Armenia and Georgia. The forecast for Georgia remains unchanged, with a 5% GDP reversal expected.
The majority of Georgia’s new infections were from Batumi and elsewhere in Adjara, while Tbilisi and other areas remained relatively unaffected. Georgia’s total number of confirmed cases stood at 2,758, and total deaths at 19. On both counts, Georgia remains far behind most European nations and all of its neighbours, where there are tens of thousands of total infections and hundreds dead.
Georgia is expected to receive $1.5bn of foreign financing this year in order to mitigate the effects of the pandemic, particularly as regards the key tourism industry.
The International Monetary Fund (IMF) is expecting a 5% contraction in Georgia's economic output this year and anticipates that the possible realisation of risks may require maintaining exchange rate flexibility and additional policy support, according to a Fund statement issued at the end of a “virtual visit” paid to Georgian authorities in September.
The IMF said that Georgia’s current account gap would double to 10% of GDP this year amid weak tourism revenues—since then the recovery outlook for the sector has deteriorated. Developments have put further pressure on the public deficit, seen in April by the IMF as heading for 8.5% of GDP.
In response to declining economic activity and easing inflation pressures, the NBG appropriately reduced its policy rate. The National Bank of Georgia on September 16 kept its key rate at 8.00%.
The central bank said that in August annual inflation continued to ease to 4.8% and that according to its forecast it would continue to gradually decline over the rest of the year, reaching the 3% target level in the first half of 2021.
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.
The European Commission said on August 11 it agreed Memoranda of Understanding (MoU) on macro-financial assistance (MFA) programmes with eight partners, including four Western Balkan countries. The agreements are part of the €3bn macro-financial assistance package for ten enlargement and
5 GEORGIA Country Report October 2020 www.intellinews.com
