Page 34 - GEORptJul19

Georgia’s central bank sees 5% growth, inflation above target this year
The central bank in Tbilisi has upheld its forecast of a robust real GDP growth of 5% for Georgia in 2019. The prediction is given in its May 8 monetary policy report.
Inflation will, however, remain above the 3% target throughout the year and ease no sooner than 2020, the national lender said. The central bank consequently envisages moderate 50bp rate cuts over the next two years, taking the benchmark rate to 6.0% in Q1, 2021.
Consumer prices have risen by 4.1% over the past 12 months in Georgia, with the country experiencing its highest annual inflation rate since January 2018, statistics office Geostat reported. Georgia’s central bank held its benchmark interest rate at 6.50% on May 1, citing forecasts that suggested annual inflation will stay close to its 3% target this year. The central bank plans to ease interest rates towards 5%-6% over the next two years, central bank governor Koba Gvenetadze told Reuters in January.
“The current macroeconomic forecast also envisages a downward trend of the monetary policy rate in the medium term,” the monetary policy report confirmed.
According to the forecast, downward pressure on inflation coming from still weak aggregate demand will be balanced this year by the effect of excises taxes on tobacco and by imported inflation along with higher intermediate costs of servicing debt due to dollarisation. In the medium term, alongside with the elimination of one-off factors, aggregate demand is expected to increase to the potential level of output, ensuring the inflation rate is maintained close to the target.
As regards the growth outlook, the central bank expects a temporary slowdown in the second part of the year.
“Despite the risks stemming from a softening of economic growth in the second half of the last year, the baseline scenario expects that the slowdown will only be temporary. This view is based on the assumption that the moderate growth of credit activity will continue, and that fiscal stimulus will be of the planned scale,” the central bank said.
According to the current forecast, net exports, consumption and investments will all positively contribute to real GDP growth – again, supported by capital spending of the government and moderate growth in loans, according to the baseline projection.
Recent estimates show that the deviation of aggregate demand from the potential level of output deteriorated somewhat in the second half of 2018, but it is expected that moderately high economic growth will continue and that the output gap will close within the next two years.
34 GEORGIA Country Report July 2019 www.intellinews.com