May 10, 2019

Monthly Update: April 2019

Monthly Update

  • US data was sending mixed signals in April while growth in EU came above expectations. According to Fed and ECB, interest rates are expected to stay at the same levels throughout 2019. Some signs of recovery were observed in Turkish economy, however, the election tensions led to weakening of lira. Georgia’s exposure to Turkey has declined substantially over the last 2 years and the share of Turkey in total inflows stood at 7.3% in 2018. IMF April WEO reconfirmed Georgia’s trend growth rate at 5.2%.
  • Real GDP growth accelerated to 6.0% YoY in March 2019 following the 4.6% YoY increase in February with sizeable fiscal contribution. At the same time, external demand remained supportive as well. Despite the strong expansion, the construction sector declined reflecting weakness in residential and non-residential buildings as well as one-off decline of the transport infrastructure construction.
  • As a result of accelerated spending and slower revenues growth, consolidated budget posted a deficit of 29.6 mln GEL in March 2019 compared to the surplus of 80 mln GEL an year ago. The Change in budget balance amounted to 109.6 mln GEL – an estimated 3.5% of the same month GDP. 
  • On April 12 2019, S&P revised Georgia’s sovereign credit rating outlook from stable to positive. Demonstrated economic resilience, prudent policy making, stable public debt levels - all remain supportive to the Georgia’s credit rating. 
  • Exports of goods in USD terms rose by 12.3% YoY (+22.3% YoY in EUR and +23.4% YoY in GEL) in March. Re-exported as well as domestically produced items posted solid growth rates. Imports of goods went down sharply by 12.3% YoY (-4.5% YoY in EUR and -3.7% in GEL) leading to a sizeable (-25.0% YoY in USD terms) improvement of trade deficit with significant impact of one-offs. Still, underlying imports growth probably was not as strong as 6% GDP increase would imply.
  • Total number of visitors went up by 4.6% YoY in March as opposed to 1.2% YoY decline in February. Pickup in visitors reflects acceleration of the same day trips to 5.0% YoY compared to 10.7% YoY decline in the previous month. Arrivals by plane continued to post strong growth rates (+19.6% YoY).
  • Remittance inflows increased by 4.5% YoY in USD terms. When Expressed in EUR and GEL, the growth rates stood at 15.0% and 16.0%. Higher inflows were fully driven by the EU with 19.2% increase in USD terms (30.6% in EUR).
  • Total bank loan portfolio increased by 14.0% YoY in March 2019, excluding FX effect. From the segments perspective corporate, MSME and retail loans increased by 12.9%, 21.8% and 11.2% YoY, respectively. Overall, even when taking into account one-offs, deceleration tendency of the loan portfolio is evident driven retail lending regulations together with the normalization of the growth rates in business credit following cyclical pick up in 2018. GEL liquidity remains favorable supporting the Larization.
  • On its 1st of May meeting, the Monetary Policy Committee (MPC) of the National Bank of Georgia decided to keep the policy rate unchanged at 6.5%. MPC’s decision to leave rate unchanged reflects a combination of as assessed weak demand side pressures and the potential risks stemming from the external sector. As a result of favorable GEL liquidity and policy rate cuts earlier, GEL deposit rates have declined.  
  • Annual inflation increased from 3.7% in March to 4.1% in April with one-off increase of excise tax on tobacco contributing to around 1.4 pp YoY.
  • Following sizeable interventions in Jan-Feb, 2019 NBG did not intervene on the FX market in March and April 2019 via the direct interventions. Sizeable FX purchases via GEL options is also unlikely to have taken place. 
  • As of the May 8, estimated GEL REER was close to its medium term average. The share of lira in officially published GEL REER is 19.1%, however, actual share of Turkey in trade in goods was 13.4% as of last 4 quarters in Q1 2019 implying the actual impact of lira on GEL REER is lower.
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