Georgia’s economy accelerated to a growth rate of 6.1% y/y in July from 4.9% in Q1 and Q2, marking the sharpest advance this year, according to estimated data released by statistics office Geostat on August 30. The figure put the average GDP growth in the year to date (end of July) at 5.1% y/y.
Growth in July was driven by construction, manufacturing, trade, real estate, rental and business activities. A decrease of economic activity was registered in July in mining and quarrying and in utilities.
In the latest independent projection, Fitch forecast that Georgia’s economic growth would decelerate to 4.3% in 2019, from 4.7% in 2018, with credit growth slowing and the Russian flight ban hindering expansion of the tourism sector. Nonetheless, the growth would remain above the forecast current BB rating median of 3.3%. Acceleration of infrastructure spending and slightly looser fiscal policy would support a pick-up in growth to an average 4.7% in 2020-2021, Fitch anticipates.
The impact of the weaker inflow of Russian tourists following the latest row between Moscow and Tbilisi was not particularly visible in July, as revealed by tourism data previously released. Georgia hosted 1,099,474 international visitors (+5.8% y/y) and 570,482 tourists (+1% y/y) in July, according to the Georgian National Tourism Administration (GNTA). The number of Russian tourists dropped by only 6.4% y/y. Russia counts as the largest origin-country for foreign tourists who travel to Georgia. The moderate decline in the number of Russian tourists offset the rising number of foreign tourists from other countries.
Georgia's exports performed particularly well in July, helped by the local currency's slight weakening over the past several months. Further exchange rate corrections in August should provide stability to exports. Georgia's exports rose by 17.4% y/y to $323mn in July, while imports, although contracting by 4.3% y/y, stood at more than twice that, namely $762mn.
Georgia’s foreign trade deficit narrowed in annual terms for the ninth month in a row, clocking a gain of 15.9% y/y in July, according to data published by Geostat. The weakening of the country’s local currency, visible since the second half of last year, partly contributed to an improvement in the external balance that still accounts for some one-third of Georgia’s GDP.
Georgia’s consumer price index (CPI) accelerated to 4.6% y/y in July from 4.3% in the month before as food prices keep rising fast. Consumer prices likely came under pressure because the local currency weakened during July prompting a central bank intervention to keep the lari above the psychologically important threshold of GEL 3 to the dollar. Georgia’s central bank targets 3% annual inflation and has maintained a hawkish 6.5% refinancing rate, having cut it to 6.75% in January and 6.5% in March.
On the banking front, in the first half of 2019, profits dropped for seven out of 15 commercial banks registered in Georgia and the aggregate net profit of the banking system decreased by 10% y/y to GEL361mn ($124mn), according to a report of the National Bank of Georgia. Some 96% of the profits was realised by the two largest banks: TBC Bank and Bank of Georgia.
Meanwhile, Mamuka Khazaradze, a co-founder of Georgia’s TBC Bank, has confirmed that despite the harassment he claims to be subject to from authorities—moves of which have lately included the seizing of his bank accounts in relation to a prosecution for alleged money laundering crimes that date back to 2008—he is going ahead with the founding of a new political vehicle.
On the political side, the breakaway Georgian region of Abkhazia on August 25 held a presidential election, described by the government in Tbilisi as "another illegal action." Nine candidates, including current president Raul Khajimba, lined up for the poll. A second round of voting will be required to elect the president Abkhazia as none of the candidates received the required majority of the vote, Georgia Today reported, quoting RIA Novosti.
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