Turkish Lira depreciation: moderate effect on Georgia
From January to August 2018, the Turkish Lira depreciated by 42% against the Georgian Lari, raising concerns about the ability of the Georgian economy to withstand the pressure, given extensive economic links between the countries.
Our research on key links – trade in goods and services, remittances, FDI and banking sector – showed that the Lira depreciation impact should be moderate, unless Turkey’s currency crisis turns into a fullfledged economic crisis. Key exposure channels are imports of goods, exports of services and remittances. Total exports of goods are largely shielded from the shock due to the high share of raw materials and intermediate products in its structure, the demand for which is much less sensitive to exchange rate fluctuations. Georgian producers of final goods exporting to Turkey, especially in the textile sector, have been already negatively affected, and this impact can exacerbate. Regarding FDI from Turkey, future inflows will be negatively affected by lower financial capacity of Turkish investors.
