Page 5 - GEORptDec19

1.0 ​Executive summary
Georgia’s GDP increased by 5.7% y/y in October and by 5.1% y/y in January-October, ​according to rapid estimate data by statistics office Geostat on December 2.​ ​In October, significant year on year real growth year was posted in the sectors of manufacturing, hotels and restaurants, information and communication.
GDP accelerated to 5.7% in the third quarter of 2019, up from 4.5% y/y in Q2 and 4.7% y/y in Q1. ​However, a deceleration is visible within the quarter, with growth falling from 6.1% y/y in July to 5.8% in August to 5.2% y/y in September. In principle that might be attributed to the sanctions imposed by Russia on Tbilisi following anti-Kremlin demonstrations by Georgians. They translated into in a smaller number of tourist arrivals.
Average growth for the first three quarters of the year was 5.0%, compared to 4.8% in the same period of 2018.​ The government’s fiscal policy is run according to envisaged 2019 growth of 4.5%. That’s broadly in line with the expectations of the international financial institutions (IFIs). The Q3 GDP figures, however, allow for hopes that a better performance will be recorded.
The IFIs have cut their projections for Georgia’s economy after taking into consideration two major drivers: the Russian sanctions​ (a ban on flights has put pressure on tourism and industries on the same horizontal)​ and monetary policy tightening ​pursued by the central bank to curb inflation partly generated by expectations for a weakening of the Georgian lari. The former factor might be removed sooner than expected, however, while the latter depends to a large extent on rhetoric and expectations.
On the upside, gradual currency weakening since last year has already resulted in a better external balance.​ ​Georgia’s trade deficit narrowed by 7.4% y/y to €1.33bn in the third quarter, with the external balance improving for the fourth consecutive quarter.​ ​But the lagged effects of the monetary tightening will be seen later next year.
A third major driver for Georgia’s economy is the volatile regional economic context.​ The World Bank has cut its forecast for the advance of the Georgian economy in 2019, lowering its growth prediction by 0.2pp to 4.4% for this year and deciding on a deeper 0.5pp cut in its medium-term 2020-2021 outlook, according to its autumn Europe and Central Asia Economic Update, released on October 9. The sanctions from Russia will reduce GDP by 0.6%, it estimated. ​ T​ he Asian Development Bank (ADB) on September 25 cut its 2019 growth outlook for Georgia to 4.7% from 5.0%.
The European Bank for Reconstruction and Development (EBRD) has projected that Georgia’s economy will grow at a rate of 4.5% this year as well as in 2020,​ according to its latest Regional Economic Prospects report issued on November 6, maintaining its previous forecast published in May.
Georgia’s consumer price index (CPI) accelerated to 6.4% y/y in September from 4.9% in the month before as food prices keep rising fast. Consumer prices likely came under pressure because the local currency
5​ GEORGIA Country Report​ December 2019 ​ ​www.intellinews.com