Growth prospects remain high, with a slight slowdown

Foreign exchange reserves have recovered significantly, reaching a new record high of USD 5.4 bn. In foreign trade, re-exports of cars and exports of services remain key themes. The budget deficit is expected to remain within limits in the medium term at around 2.5% of GDP. The Eurobond matures in spring 2026, with the increased risk premium likely to lead to higher refinancing costs.

Growth remains high, 2026: slight slowdown

According to estimates by the National Bank of Georgia (NBG), the economy will grow by 7.4% this year. Georgia is thus continuing its long period of strong economic growth. Consumer spending remains high, although a certain degree of normalisation is expected after the sharp rise in 2024. Gross fixed capital formation is also likely to make a positive contribution, albeit at a slower pace than in previous years. From a sectoral perspective, in addition to the ever-important tourism sector, the high growth in the IT sector is also noteworthy.

Moderate growth of around 5.0% is forecast for 2026, which is in line with long-term potential growth. The slowdown is mainly due to a normalisation of domestic and foreign demand. Nevertheless, Georgia remains one of the strongest economies in the region.

Inflation rises above target, policy rate unchanged

Inflation rose steadily throughout 2025, reaching 4.8% in Nov-25. This is mainly due to the rise in food prices.

Although inflation has been above the target rate of 3% since Mar-25, core inflation (i.e. excluding food and energy) was only 2.3% in Nov-25. The NBG therefore expects the inflation rate to stabilise again in the coming months. Nevertheless, a cautious monetary policy will be maintained. The key interest rate has remained unchanged at 8% since May-24. Further developments will largely depend on whether inflation risks persist.

Exchange rate stable, significant recovery in reserves

The lari stabilised in 2025 and is currently floating around 2.70 GEL/USD, which indicates a certain recovery after last year’s depreciation pressure.

After FX reserves fell significantly over the course of last year due to multiple FX sales, the NBG has stepped up its currency purchases in recent months. As a result, reserves rose strongly again, reaching an all-time high of USD 5.8 bn in Nov-25. This development was also supported by an increase in the value of gold reserves. The rise in reserves (41% yoy) gives the NBG more buffers to act on the currency market in crisis situations.

Re-exports and service exports remain strong

In goods trade, exports and imports are expected to grow by around 8% this year. Re-exports, especially of motor vehicles, continue to play a key role here. A similar development is expected for 2026. Service exports are expected to rise by 9.6% this year as the positive momentum in tourism and the IT sector continues. This development is expected to continue largely unchanged in 2026, with estimated growth of 8.2%. The current account deficit will reach 4.5% this year and is expected to be similarly high next year.

Budget situation favourable, refinancing of Eurobond

Public debt is expected to stand at 35.9% of GDP in 2025, mainly due to continued strong economic growth and the appreciation of the lari. The budget deficit remains within the fiscal rule at 2.5% of GDP, indicating sound fiscal management.

One development to watch out for in the coming year is the planned refinancing of the Eurobond. Although the debt structure is predominantly characterised by multilateral and bilateral loans granted on favourable terms, Georgia has also issued a Eurobond worth USD 500 m, which accounts for approximately 4% of its total debt. This will mature at the end of its five-year term in April 2026, and the government is currently working on the terms for refinancing. The risk premium, i.e. the interest rate premium over a US government bond with the same maturity, is an indicator of the market’s perception of Georgia as a borrower. The risk premium has risen significantly since spring 2024. At that time, it was slightly below the level at the time of the bond issue, at around 150 to 200 bp, while it currently lies at around 350 to 400 bp. If this trend continues, Georgia would have to bear higher costs for refinancing not only because of the global rise in interest rates, but also because of the increased perceived country risk.

Outlook

In a challenging global environment, growth remains strong. The outlook for 2026 is also positive. This is the result of strong domestic demand and a stable situation in external trade and public finances. A positive note is the significant recovery in FX reserves, which reached a record high at the end of 2025. This recovery also contributed to Fitch recently raising its rating outlook from negative to stable.

Given the high share of foreign currency debt, the risk premium remains an important benchmark for economic development. Its increase shows that the perceived country risk has risen. This could already have an initial impact on refinancing costs when the Eurobond is refinanced in spring 2026. However, as a large part of the debt was granted by international partners, these effects are limited.

Georgia’s economic stability will depend largely on how the country deals with the existing challenges. Policymakers must continue to create an environment that strengthens the confidence of market participants and investors in order to maintain positive economic development. Despite the difficult environment, Georgia remains well positioned economically if it succeeds in ensuring macroeconomic stability and cushioning external shocks.

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This newsletter is based on the 22nd edition of our Economic Monitor Georgia