Page 14 - GEORptDec20

World Bank substantially cuts GDP forecasts for South Caucasus
increase productivity and enhance private sector-led growth.
As regards monetary policy, the IMF suggested that interest rates should be maintained at least at current levels (8%) with continued provision of local currency and dollar liquidity in coordination with the finance ministry and the provision of long-term local currency liquidity.
“Staff supports the current monetary stance, which should be maintained until there are clear signs that inflation remains on a downward trend in the context of recent lari depreciation. Keeping inflationary expectations anchored may call for tightening the monetary policy stance should pressures on lari exchange rate feed into expectations,” the statement read.
The World Bank has substantially cut its 2020 economic growth forecasts for Georgia, Armenia and Azerbaijan because of the extent of the coronavirus (COVID-19) crisis. ​It also expects slower recoveries for all three of the South Caucasus nations next year, in comparison to what it was anticipating in its previous forecast released in June.
The South Caucasus regional economy as a whole is expected to contract by 4.9%, or by 1.8pp more than was expected in June, the World Bank said in its economic update report, citing prolonged pressure from the pandemic and low commodity prices.
It is the deepest downside correction made by the World Bank in terms of economies in Europe and Central Asia.
“Activity is projected to pick up to 2.7% in 2021, as the shocks related to the COVID-19 pandemic dissipate and tourism recovers alongside improving consumer and business confidence in Armenia and Georgia,” the institution added.
That is 0.3pp less than what was predicted in the bank’s June forecast.
Furthermore, the World Bank added a “downside scenario” for a situation in which there is a slow rectifying of the health crisis. The World Bank said that the downside scenario for 2021 projected a much weaker recovery, with 1.8% growth.
Georgia’s GDP is expected to shrink by 6% in 2020 (1.2pp more than projected in June), reflecting mobility restrictions at the start of the pandemic, job losses and continued restrictions on international tourism. Georgia has thus far been relatively successful in containing the spread of COVID-19 infections, but the economy has been hit hard by restrictions on mobility and the collapse of tourism. The World Bank sees an “uncertain and gradual recovery“ of 4% in 2021, in line with its previous scenario. Growth would accelerate to 6% in 2022.
The institution now expects Armenia’s economy to shrink by 6.3% in 2020, after making the deepest negative correction (3.5pp) as regards the three South Caucasus countries. The country has among the highest coronavirus infection rates in Europe and Central Asia and the World Bank’s scenario assumes that Armenia will continue to experience community transmission until mid-2021, but that the COVID-19 infection rate will remain largely stable and no further lockdowns will occur. Armenian GDP would rebound by 4.6% in 2021, compared to the 4.9% projected in June, if the latest forecast proves correct. On low base effects and assuming no COVID-19 constraints, the
14​ GEORGIA Country Report ​December 2020 ​ ​www.intellinews.com