Growth remains robust, but risks increase

The public deficit remained low. While the outlook for 2025 remains favourable, with growth projected at 5.0%, the economic policy environment is becoming more complex. Lower reserves, reduced external support and a higher risk premium underline the importance of sound economic policy and cooperation with international partners to maintain macroeconomic stability.

Economic growth remains high

With growth of 9.5%, Georgia’s economy remained very robust in 2024. Growth was broad-based, with strong dynamics in the services sector. Private consumption remained the most important driver of growth. Growth is expected to slow to 5.0% by 2025, which is in line with the long-term trend. This reflects a normalisation of domestic and foreign demand after four years of exceptionally high growth. It would still make Georgia one of the fastest growing economies in the region.

Inflation remains low, slight cuts in policy rate

Despite some upward trend in mid-2024, inflation remained below the 3% target throughout last year, as commodity prices remained relatively stable and thus
slowed imported inflation. Therefore, in early 2024, the NBG continued its gradual easing of monetary policy, lowering interest rates in three steps from 9.5% to 8%.
However, as global price pressures are increasing, the NBG expects inflation to rise moderately in 2025. This means that further interest rate cuts will be moderate
and dependent on the external environment.

Exchange rate stabilised, but at a cost to reserves

An additional factor to consider for further policy rate cuts is the development of the lari. It came under depreciation pressure in May/June and October, prompting the NBG to intervene with FX sales. With a net total of USD 435 m, the NBG thus became a net FX seller the first time since 2021. After the sales, the exchange rate stabilised around GEL/USD 2.80 at year-end 2024.

As a result of these sales, FX reserves declined notably, leading to reduced buffers against potential external shocks. With a year-end level of USD 4.4 bn, they were approx. USD 560 m lower than at the start of 2024. FX reserves had recovered slightly in December, due to increased reserve requirements for commercial banks.

Trade and money transfers normalise

Meanwhile, foreign trade and external inflows are normalising after several years of exceptional growth. Goods exports and imports have increased by around 8% compared to the previous year, still driven by the development of re-exports, particularly of cars. Despite a slowdown in their growth, they continue to play an
important role in imports and exports as Georgia remains a regional transit hub. In 9M2024, services exports grew by 12.3% yoy. Revenues in the tourism sector, the largest contributor (approx. 60%), increased by 6.5% yoy. Transport services exports remained strong with growth of 18%, supported by continued trade flows. As demand for outsourcing services slowed, exports of IT services recorded a decline of 22%. Money transfers from Russia, which had increased significantly since 2022 due to relocation, continued to decline. At USD 541 m in 2024, they now account for 16% of the total, which is less than before relocation.

Stable public finances, but rising risk premium

The favourable macroeconomic environment has also benefitted public finances, with the budget deficit remaining stable at 2.5% of GDP. For the third consecutive
year, the deficit was thus at or below the fiscal rule limit of 3%. For this year, the deficit is expected to be similar. Low deficits in previous years have also contributed to the improvement in the public debt ratio, which continued its gradual decline, reaching 36.8% of GDP in 2024. It is projected to stabilise around 35% by 2026.

However, the political context is visible in the rise of the risk premium of the Eurobond, which has increased by around 200 bps in the course of 2024.

Outlook

Georgia’s economy is expected to remain one of the strongest performing in the region in 2025, with growth supported by robust domestic demand and a strong services sector. However, the macroeconomic environment is becoming increasingly complex. Tourism and transport, for example, have been important drivers of service exports and economic growth in recent years. However, these sectors are sensitive to external conditions and domestic developments. They may show greater volatility than in the recent past depending on perceptions among international travellers, regional trade dynamics and cross-border connectivity.

At the same time, the framework for Georgia’s external support is shifting. While the country has benefitted from grants and favourable loan conditions from multilateral donors in the past, this support is currently being adjusted. USAID, a major donor, has cancelled its funding and the EU has also reduced its assistance. These decisions reflect broader geopolitical dynamics, but also recent domestic political developments. This comes at a time when foreign exchange reserves have declined significantly, reducing the buffer against potential shocks. Although an IMF mission visited Georgia in January, no agreement has yet been reached on resuming the current programme or launching a new one. At the same time, the risk premium has risen sharply and is now well above the level of December 2023, when Georgia was granted EU candidate status. This makes it more expensive to refinance old debt or take out new loans. In light of these developments, Fitch Ratings revised its outlook for Georgia to negative in December 2024. While Georgia’s economy has proven its resilience, managing this more challenging environment will require prudent economic policies and effective cooperation with international partners.

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This newsletter is partly based on the 21st edition of our Economic Monitor Georgia.