Jun 28, 2019

The CA deficit improved and the GEL undervalued

Quick Update

  • The CA balance improvement trend continued also in Q1 2019 with the deficit to same quarter GDP ratio at 6.2% - being historically low with an improvement of 5.7 percentage points YoY and with the strongest contribution of the trade in goods. The positive tendency has likely sustained in Q2 as well judging from the trade balance, tourism and remittances inflows (see notes on  trade, remittance and tourism). Q1 FDI inflows, when adjusted for one-offs, remained reasonably strong (see note FDI inflows).
  • Over the last 4 quarters, the current account deficit to GDP ratio stood at 6.4%, also improving by 1.3 percentage points compared to the previous quarter. When adjusted for the reinvested earnings, the deficit equaled 5.0%.
  • Strong external sector, including seasonal peak in Q3, is expected to balance the impact of Russian tourism sanctions (see more in Russian Sanctions: Manageable Impact on the growth and still betting on the GEL ).
  • Over the first six months of 2019, the NBG bought 216 mln USD or 3% of the same period GDP.
  • GEL REER, as of the 28th of June, has weakened substantially, posing high inflation risks and is likely to appreciate going forward (see more in TBC Economic Review insights #3 and #9).
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