Growth remains high, with some normalisation

Fourth consecutive year of high growth

Driven primarily by strong consumption, the Georgian economy is expected to grow by 8.5% according to the estimate by the National Bank (NBG). The annual forecast had been revised upwards as the preliminary growth estimates indicated higher activity than previously expected. Georgian banks believe that even higher growth rates are possible. 2024 will therefore be the fourth consecutive year of high growth. Due to a slowdown in consumption, growth is forecast to fall to around 5.0% in 2025, but Georgia will remain one of the top performers in the region.

Inflation remains very low, rate cuts continued

Inflation in Georgia has been consistently below the 3% target since April 2023, remaining close to zero in the second half of 2023.

Inflation rose slightly for a short time until mid-2024 (partly due to higher transport costs) but stood at a very low rate of 0.6% again in September. The NBG expects inflation to approach its target by mid-2025.
In 2024, the NBG lowered the key interest rate in three steps from 9.5% to the current 8.0%, thereby continuing the course from the previous year. In view of the remaining inflation risks from commodity imports, further interest rate cuts are likely to be only gradual.

Lari stable, substantial FX interventions

The lari has remained stable in a narrow range around 2.70 GEL/USD since mid-2023. However, between April and June 2024, the lari depreciated by around 7%, approaching 2.90 GEL/USD.

According to the NBG, this depreciation was due to short-term effects and not to macroeconomic factors. Therefore, the bank responded by selling foreign exchange reserves totalling around USD 220 m. The majority of the sales took place via three auctions in May and June 2024 (USD 169 m), with the remainder conducted via rule-based interventions. The lari subsequently appreciated to its previous level of approx. GEL/USD 2.70 by July, where it has remained since. Ahead of the parliamentary elections in October, the NBG conducted further interventions, selling an addi-tional USD 213 m through four auctions. Including rule-based interventions, total sales reached approx. USD 591 m. The interventions thus contributed to the trend of declining reserves, which now stand at approx. USD 4.1 bn.

Trade dynamics slow down

Goods exports grew by 2.5% yoy in 8M2024. The main drivers were motor cars, ferroalloys, spirits, and wine. Import growth reached 3.3% yoy, driven primarily by oil products, medicaments and data processing equipment. The growth rates for both imports and exports of goods will remain below the high rates of previous years, which were characterised by special factors, meaning that the previous year’s level was already high.

Among services exports, the important tourism sector increased by 5.2% yoy in the first half of the year. Transport services grew by 19% in the same period, while IT services fell by 26.8% from a high base in the previous year. As with trade in goods, the dynamics of services exports will therefore also moderate.

Stronger import growth and a normalisation of exter-nal inflows such as remittances are expected to increase the current account deficit to 5.8% of GDP in 2024 (2023: 4.3% of GDP).

Deficit and debt remain stable

Following a significant decline in recent years, the budget deficit reached 2.5% of GDP in 2023. It is also expected to remain at this level in 2024 and 2025 and thus well below the 3% limit according to the fiscal rule.

High growth and the decrease in the budget deficit also contributed to a further improvement in the public debt ratio, which stood at 39.2% of GDP in 2023 and is expected to reach 36.5% in 2024.

Outlook

Based on solid macroeconomic fundamentals with strong growth for four consecutive years, Georgia has seen a strong increase in GDP per capita: the IMF estimates it at USD 8,883 this year, more than doubling since 2020. This is a remarkable development considering that these years were characterised by the effects of the COVID-19 pandemic and the war in Ukraine.

However, given the broader turbulence the country is going through, risks should be noted. Foreign exchange reserves have been on a downward trend for some time, also due to recent interventions by the National Bank. In October, they were down 20% yoy. While the interventions have supported short-term exchange rate stability, they also underscore the need to manage reserves carefully to ensure that there are sufficient buffers against potential external shocks. Keeping reserves at a robust level and maintaining a reliable exchange rate regime are key to ensuring confidence in the currency and mitigating risks, such as increasing dollarisation, which in turn ensures long-term economic resilience. The risk premium on the Eurobond has risen lately, reflecting market participants’ perception of higher country risk.

The political context in Georgia is thus a key factor influencing economic conditions. It also shapes Georgia’s relationships with its international partners. Maintaining consumer and investor confidence will be crucial to sustaining the growth momentum. Vigilance is needed to navigate these risks and safeguard the strong economic progress achieved in recent years.

This newsletter is partly based on the 20^th edition of our Economic Monitor Georgia.

Download as PDF