Page 5 - GEORptNov18

1.0 Executive summary
Georgia, the small South Caucasus country of 3.9mn, expanded by 5.5% y/y in Q2, the highest growth rate in more than five years. The expansion was driven by a rise in activity in transport, hotels and restaurants, financial intermediation and trade sectors. GDP growth is estimated to ease to 4% y/y in Q3, the weakest figure seen for a quarter in nearly two years, according to the country’s statistics office. Meanwhile, GDP growth strengthened in September to 5.6% y/y after slowing to 2% in August. Estimated real GDP average growth amounted to 4.9% y/y for the first nine months of 2018.
The economy achieved 5% growth in 2017. The Georgian economy has bounced back from several years of slow growth across 2015-2016, when a depressed economic environment in the region and low oil prices indirectly impacted its performance. The National Bank of Georgia and international development institutions have raised the country's GDP growth forecast from 4.8% to 5.5% in 2018, up from 2.7-2.9% in 2015-2016.
Among the reasons behind the upward revision are improved domestic and external demand due to significant foreign capital inflows - mainly from exports, tourism and remittances - and improved business sentiment, credit growth and capital spending by the government. However, structural imbalances continue to plague Georgia's macroeconomy , most notably its large trade deficit, which is financed partly with external borrowing, and its unpredictable currency, the exchange rate of which has varied widely.
Georgia's foreign trade deficit inched upwards to $5.25bn in 2017, up from $5.18bn in 2016, and by 17.5% y/y to $1.34bn in the first quarter of 2018. Albeit robust growth in exports, imports continue to dwarf exports at $711mn in September compared to exports of just $301mn.
Reducing the foreign trade and overall current account deficit has been an ongoing concern in Tbilisi. An oil and gas-importing country, Georgia has struggled to expand its manufacturing base enough to make up for its sizeable energy imports and for its imports of higher added-value goods.
Meanwhile, consumer prices grew 2.7% y/y in September; well within the government's target rate of 3% for 2018. As a result of the rapid strengthening of the nominal effective exchange rate thanks to impressive tourism inflows (+28.9% y/y) , inflationary pressure is reduced. The central bank took advantage of the balmy climate to add an extra $87.5mn to its gross international reserves (GIR) of just under $3bn, and this cushion can now be used to soften the devaluation pressures if needed.
The presidential elections were held in Georgia on October 28. Turnout stood at a modest 46.7% , according to officials, in line with expectations and almost exactly the same figure as was seen for the 2013 presidential election. The first-round gave Salome Zurabishvili, an independent candidate supported by the ruling Georgian Dream party, a wafer-thin lead of 38.64% of votes to 37.74% over Grigol Vashadze, who is supported by an opposition coalition including main opposition party United National Movement (UNM), the Central Election Commission (CEC) said on October 29, a day after the vote. Former speaker of parliament Davit Bakradze, nominated by the opposition
5 GEORGIA Country Report November 2018 www.intellinews.com