Georgia’s Growth Projections Strong, but Turkish Lira Crisis May Dampen Buoyant Forecasts | Georgia Business Finder
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Georgia’s Growth Projections Strong, but Turkish Lira Crisis May Dampen Buoyant Forecasts

Georgia’s Growth Projections Strong, but Turkish Lira Crisis May Dampen Buoyant Forecasts
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ISET-PI has updated its forecast of Georgia’s real GDP growth rate for the third and fourth quarters of 2018.

Recently, Geostat released the preliminary estimate of real GDP growth for the second quarter (April-June) of 2018, which now stands at 6.0%. This is only 0.1 percentage points above the recent ISET-PI forecast. As a result, real GDP growth for the first seven months of 2018 reached 5.5%.

ISET-PI’s forecast of real GDP growth for the third quarter (July-September) of 2018 stands at 7.2% – the same as last month’s prediction. The first estimate for the fourth quarter (October-December) growth forecast stands at 6.5%.

• Based on July’s data, we expect annual growth in 2018 will reach 6.3%. This optimistic forecast is consistent with the evidence coming from the National Bank of Georgia and international development institutions. For example, the National Bank of Georgia revised its expectation for the real GDP growth from 4.8% to 5.5% in 2018. According to the Monetary Policy Report, among the reasons behind the upward revision of the prediction are the improved domestic and external demands due to significant foreign inflows (mainly from export, tourism, and remittances), improved business sentiment, credit growth, and capital spending by the government.

• Moreover, the International Monetary Fund (IMF) has also raised its growth forecast from 4.8% to 5.5% in 2018. IMF provided similar findings to the National Bank of Georgia, identifying some other contributors of the real GDP growth: low and stable inflation that allows the Central Bank to carry out expansionary monetary policy, and markedly reduced dollarization of loans and deposits. However, this authoritative institution identified threats coming from deteriorating economic conditions in the region.

The Georgian statistics office, Geostat, has released its preliminary estimate of GDP growth for the second quarter of 2018. Its estimated growth figure is 6.0%, which is only 0.1 percentage point higher than ISET PI’s forecast. As a result, our projected real GDP growth for the third quarter of 2018 remains unchanged at 7.2%.

ISET PI’s forecast for fourth quarter growth stands at 6.5%. This optimistic forecast figure can be explained by markedly improved external and internal conditions. The economic situation in the region remains favorable, leading to the high numbers in export (currency crisis in Turkey and ruble depreciation is not reflected in the model yet), tourism and remittances, low and stable inflation, credit expansion, enhanced monetary aggregates, and accelerated growth of national currency deposits.

External Factors

A great majority of the countries in the wider region continue their strong growth path in June and July of 2018. According to the rapid estimates of real GDP growth, Kazakhstan, Belarus, and Russia advanced on average by 4.6%, 4.5%, and 2.2%, respectively, in June-July 2018, compared to the same month of the previous year. The Armenian economy continues to surprise economists with high growth figures – currently 10.4% in annual terms. Only the Azerbaijani economy is still far behind its peer countries, with an average annual growth rate of 0.8% in June-July. Improved economic conditions in the wider neighborhood stimulated the Georgian economy through trade, remittances, and tourism channels. However, the Turkish currency crisis and the significant depreciation of the Russian ruble, both of which are potential external threats to the Georgian economy, are not taken into consideration in our model yet.

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