The Central Bank of Georgia (NBG) will revise its forecast for the country’s economic growth this year upwards from 4.5 percent, NBG Chairman Koba Gvenetadze told media on July 8, after the Russian invasion of Ukraine failed to curb the country’s rise.
Statistics office Geostat said the economy grew 11.2% year-on-year in January-May and the National Tourism Administration said the number of international tourists soared 126% year-on-year.
The drivers of the Georgian economy’s annual growth are remittances, tourism and exports, although the trade deficit has not narrowed significantly. Spending by refugees from Ukraine and migrants from Russia also made a significant contribution to private consumption, imports and growth in the first part of this year.
“We will update the main macroeconomic indicators at the monetary policy committee in early August. I can say now that based on the results we have now, again given the trends we see for the future, the forecasts economic growth will most likely be revised upwards,” Gvenetadze said.
The International Monetary Fund (IMF) and World Bank (WB) are also expected to revise their projections upwards after their expectations plunged to 3.2% and 2.5% respectively immediately after the outbreak of war in Ukraine.
Other independent analysts are even more bullish on the country’s economy. Brokerage Galt and Taggart chief economist Eva Bochorishvili said she expects double-digit growth (10.6%) this year, driven by tourism, remittances and exports.
GDP not only grew by 11.6% y/y in May, but the growth rate for the first quarter has been revised upwards (to 14.9% y/y), she commented. Notably, the construction sector was revised to positive growth from a negative rate estimated according to preliminary figures.
“Despite rising interest rates, our estimate is that economic growth this year will be 10.6%. We call this an optimistic scenario at the moment, but once the June figure is released it will become our baseline scenario,” Bochorishvili said.
The IMF does not rule out increasing economic growth forecasts for Georgia, confirmed Jihad Azur, head of the fund for the Middle East.
“I think depending on the nature of the recovery we see, the pace of the recovery may cause us to revise the economic growth forecast for Georgia in 2022 toward an increase,” Azur said.
At 3.2%, the fund’s forecast is obviously very conservative.
The World Bank was quicker in revising its forecast upwards – which was cut from 5.5% to 2.5% in the aftermath of the war in Ukraine – although the new forecasts are yet to make the rounds. object of an official report. At the end of May, Sebastian Molyneux, the bank’s regional director, said they were now still expecting 5.5% growth in the country.
What is particularly encouraging in terms of structural developments is that Georgia’s economy has already recovered to pre-pandemic levels and continues to grow rapidly despite tourism figures which are only a fraction of what they were before the pandemic. The number of foreign tourists in January-June increased by 126% year-on-year, but it was only 57% of the figure for the first half of 2019. This indicates that other sectors are gaining ground, contributing to a resilient economic structure) .
The volume of remittances to Georgia has increased regardless of the pandemic, the war in Ukraine or other developments. In January-June this year, the volume of transfers to Georgian households reached $1.36 billion, up 54% year-on-year and 126% more compared to the first half of 2019.
Georgia’s exports increased by 38% year on year and by 43% compared to the first half of 2019. However, the trade deficit did not narrow (on the contrary, it increased by 25% compared to 2019) but that is to be expected for a net energy importer like Georgia.
As for inflation, according to BNG forecasts, the average annual inflation this year will be 9.5%, but Gvenetadze does not exclude that the central bank revises the current forecasts downwards.
“For example, oil prices declined last week due to the US Federal Reserve continuing to tighten monetary policy, which could lead to a global recession and affect oil prices. Oil prices will also be reflected in Georgia – not immediately, but at some point. Therefore, we will also analyze these factors.
“At this point, I can tell you that the forecast we have for inflation is the same – 8.5-9% on average, 9.5% at the end of the year. Yet, due to the fact that there are quite a few changes in a short period of time, it is difficult to say now how. There will be an update, but of course we will update the forecasts that we will have, “said Gvenetadze .