Page 5 - GEORptFeb20
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1.0 Executive summary
Georgia’s GDP expanded by 5.2% y/y in 2019, according to preliminary data released by statistics office Geostat on February 3. Growth thus accelerated from the 4.8% seen in each of the previous two years. The major international financial institutions, meanwhile, expect a robust advance this year, although a certain slowdown is likely to occur. That is expected to happen partly in response to monetary tightening pursued since last autumn by the central bank.
Geostat chief Gogita Todradze said at a press briefing that in December 2019, compared to the same month the previous year, growth was seen in the processing industry, transport, trade and hotel and restaurant sectors. Yet there was a downwards trend in the construction sector.
GDP growth eased to 3.8% y/y in December, according to the statistics office’s rapid estimate. The figure seems to illustrate a scenario evidencing an economic slowdown driven by monetary tightening, although the lagged effects of the higher refinancing rates are unlikely to be visible as yet.
In fact, the average growth rate measured across Q4 was 5.3%, slower than Q3’s 5.8% y/y but above the growth rates seen in each of the first two quarters of last year. The lagged impact of the monetary tightening is likely to surface no sooner than toward the end of the first quarter of 2020, assuming a six-month lag.
Major investment bank in Georgia, Galt & Taggart (G&T), expects the country to see growth of 4.7% in 2020 amid “fiscal acceleration during elections”, while the World Bank remains on the conservative side—it anticipates Georgia will record a GDP gain of 4.3% this year, according to the latest edition of its Global Economic Prospects report issued on January 9.
On the upside, gradual currency weakening last year has already resulted in a better external balance. Georgia’s trade deficit in 2019 narrowed by 8.5% y/y to $5.28bn with exports up 12.4% y/y to $3.77bn and imports down 0.8% y/y to $9.05bn. The external balance improved for the fourth consecutive quarter, but the lagged effects of the monetary tightening will be seen later this year.
Georgia’s volume of FDI, expressed as a percentage of GDP, is indeed impressive even though it has shrunk compared to recent years. However, its structure is dominated by the re-invested earnings of the country’s two major banks. Foreign direct investment (FDI) in Georgia increased by 13.7% y/y to $417mn in the third quarter of this year against a trend that was generally downwards.
Georgia’s consumer price index (CPI) eased to 6.4% in January from 7% in the previous month. The drop in inflation was mainly an effect of the one-off impacts of tobacco excise duties being phased out one year after they pushed up inflation by 0.7pp to 2.2% y/y. Georgia’s central bank at its January 29 board meeting maintained its refinancing rate at 9% and said that monetary policy would remain tight until medium-term inflation expectations declined to the 3% target.
5 GEORGIA Country Report February 2020 www.intellinews.com
