Page 5 - GEORptOct22

1.0 Executive summary
Economic activity has been stronger than expected, with real GDP growth estimated at 10.5% y/y in the first half of 2022. This growth has been driven by transportation, energy, hotels and restaurants, and industry. Construction permits increased by 15.6% during the first half of 2022 y/y, suggesting a recovery in domestic investment.
The International Monetary Fund (IMF) has dramatically increased its forecast for Georgian growth from 3.2% to 9% for this year as “expected negative effects of the war in Ukraine have not materialised so far”.
At the end of a mission to Georgia from September 8-14, the IMF issued a press release on September 15 that reported that, “despite a challenging external environment, the Georgian economy is set to achieve strong growth and buoyant fiscal revenues this year”.
The IMF based the huge growth revision on a faster-than-expected recovery of tourism, a surge in inbound money transfers, and immigration-related flows that have helped strengthen the external position and sustain domestic demand. However, IMF also urged that there are notable downside risks including a sharper slowdown in major trading partners, tighter global financial conditions, possible weakening of tourism and other external inflows, and sustained high commodity prices.
The World Bank upgraded its forecasts for Georgia on account of the strong performance recorded during 2022, with growth projected to reach 8.8% by the end of 2022.
Inflation is expected to remain in double digits in 2022, although price pressures are likely to diminish towards the end of the year. Inflation is expected to decline in 2023 and beyond, as international oil prices and supply-side bottlenecks ease.
EU foreign policy chief Josep Borrell said on September 6 that Georgia needs to accelerate reforms in areas such as the rule of law, the independence of justice, and media freedom before it can be granted the status of a European Union membership candidate. In June, EU leaders granted Ukraine and its neighbour Moldova candidate status, while Georgia, another post-Soviet state, was told it would get the same once it had implemented more recommendations.
The Georgian Parliament will create five working groups to handle the conditions underlined by the European Union for granting the country membership candidate status, announced Parliament's Legal Affairs Committee on August 4.
After peaking in June, inflation has eased slightly, reaching 10.9% y/y in August. Higher food and energy prices (as well as utility costs) account for most of the inflation this year. According to high-frequency surveys from May 2022, about three-quarters of the respondents from low-income households reported having reduced food consumption in response to rising prices.
The National Bank of Georgia (NBG) has kept the monetary policy rate unchanged since March, at 11%, after gradually increasing the rate since
5 GEORGIA Country Report October 2022 www.intellinews.com