Georgia’s GDP contracted by 6.8% y/y in Q4, a quarter in which the country's economy was hit by the second lockdown that continued into the first quarter of 2021. The blow suffered at the end of the year resulted in a full-year economic decline of 6.2%, slightly steeper than the 6.1% previously estimated, according to preliminary quarterly data issued by the statistics office Geostat.
Positive growth rates in January were seen in only a handful of sectors: information and communication, and financial and insurance activities, Geostat commented. Georgia’s GDP contracted by 11.5% y/y in January 2021, deepening from 7.9% in December 2020, according to a flash estimate from Geostat.
Georgia’s coordinating council set up to prevent the spread of the coronavirus at its February 24 meeting decided to lift a number of pandemic restrictions from March 1. In the meantime, efforts to secure a supply of coronavirus vaccines for the South Caucasus country are advancing slowly.
The first wave of the coronavirus health crisis was almost entirely avoided by Georgia with well coordinated measures in the spring of 2020, though at the expense of economic growth. However, the pandemic exploded in November-December in Georgia, straining the economy further. On the upside, the country has received sufficient financing ($1.5bn, equivalent to 9% of GDP) from donors to keep the exchange rate in check and address expected inflationary challenges.
The foreign direct investment (FDI) flow to Georgia amounted to $616.9mn in 2020, down 52.9% from 2019, according to the preliminary data announced by statistics office Geostat. The figure was the lowest recorded in 15 years.
Georgia’s current account deficit amounted to $2.0bn, or 12.3% of GDP in 2020. That's marked down as more than double the $891mn (5.3% of GDP) deficit recorded in 2019. Shrinking tourism revenues amid the coronavirus pandemic were mainly responsible for the deterioration in Georgia’s external position. To offset the loss of forex revenues from tourists and the expected impact on the balance of payments, the government borrowed heavily last year.
Georgia's external indebtedness has increased while the medium-term outlook for foreign exchange earnings has weakened, S&P said in a February 26 report, in which it downgraded Georgia’s sovereign outlook to negative.The balance of payment issues have passed through to the exchange rate and the local currency, the Georgian lari (GEL), in 2020 lost 13%.
At the same time, subdued economic activity and one-off public expenditures on social and health purposes exerted pressure on the public budget in 2020, which soared fivefold to over 8% of GDP in the year. The pressure was also felt in public debt. It neared 60% of GDP.
Georgia's exports decreased by 6.8% y/y in January-February to $494.7mn. However, domestic exports (which exclude re-exported goods) increased by 7.9% y/y to $369.0mn. They amounted to 74.6% of total exports, driven by exports of metal ores to China. Direct exports have now been on the rise for four years, moving up 50% since 2016.
Meanwhile, the National Bank of Georgia (NBG) hiked its key rate, the refinancing rate, at its March 17 monetary policy board meeting by 50bp to 8.5%, explaining that low inflation (3.6% y/y in February) was only a transient effect of energy price subsidisation. NBG, in explaining its monetary policy tightening, is citing risks of imported inflation and high dollarisation that facilitates the strong pass-through of exchange rate variations to consumer prices.
On the political front, the ruling Georgian Dream party and opposition parties in Georgia have failed to agree with a solution to the country’s political crisis as proposed by Christian Danielsson, EU Council President Charles Michel’s personal envoy.
Georgian Parliament Speaker Archil Talakvadze on March 25 reiterated that the ruling Georgian Dream party will not consider holding a repeat general election or the release of opposition United National Movement (UNM) president Nika Melia. On February 23, Melia was detained amid a situation in which the opposition parties have been boycotting the parliament, claiming last autumn’s general election was fixed in Georgian Dream’s favour. He was taken into custody after allegedly refusing to post bail on charges of organising and using group violence during June 2019 protests in Tbilisi, charges he claims are politically motivated.
Georgia’s prime minister Giorgi Gakharia resigned on February 18 after condemning an “unacceptable” court ruling ordering the pre-trial detention of opposition leader Nika Melia.
Georgia’s new PM, Irakli Garibashvili, said in one of his first statements as head of the Georgian Dream government that snap elections—the main demand from the opposition parties—were out of the question and that “ordinary criminal” Melia belonged in jail—he made that comment despite the fact Melia has not yet stood trial.
A quick resumption of the global tourism industry and the normalisation of relations between the ruling and opposition parties are the main elements that would in coming years address the damage inflicted on Georgia’s economy.
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