Mar 6, 2019

Monthly Update: February 2019

Monthly Update

  • Fed keeps rates on hold on the signs of slowing consumer and business activity in the economy. The EU economy also continues to slow. Growth of Georgia’s exports, tourism and remittances has moderated in January in USD terms, however remained reasonably strong when expressed in EUR and GEL. Though often the transaction currency in international flows is USD, the EUR better reflects underlying value of real assets in Georgia and its economic partners.
  • Fitch Ratings upgraded Georgia’s sovereign credit rating from ‘BB-’ to ‘BB’ with stable outlook reflecting resilience of the economy towards unfavorable external developments as a result of diversified sources of inflows, other strong macro fundamentals and the role of ongoing large projects the Anaklia deep sea port being the most important to be highlighted.
  • Real GDP growth slowed to 3.5% YoY in January 2019 following the 5.6% increase in December 2018. Slower increase in economic activity partly reflects lower exports of goods growth, especially in categories with higher domestic value added. Also, domestic demand was likely weak as a result of slower growth in retail lending and slightly worsened consumer and business sentiments. As for the fiscal, the indicators on the impact on GDP growth were mixed. 
  • Budget posted a surplus of 199 mln in January 2019 – quite high level even taking into account the seasonality. While sharp increase in spending in December is likely to have had some positive impact on January growth, more sizeable contribution is expected to be materialized in coming months.
  • Gross exports of goods in USD terms rose by 7.2% YoY in January. Imports of goods, similar to previous two months, continued to decline (-1.1% YoY) in January as well reflecting lower oil prices and likely weak domestic demand. At the same time, exports and imports growth expressed in EUR stood at 14.3% and 8.5% respectively. As for the trade in goods balance, it continued to improve in third consecutive month.
  • Number of tourists went up by 5.9% YoY in January 2019. Slow growth reflects declining number of visitors from Turkey, Iran and Armenia. Growth of visitors continues to be strong from the EU with 36.0% YoY increase. Visitors from Russia were also up by 16.8% YoY having the largest contribution.
  • In January remittances increased by 5.1% YoY in USD terms. Remittances growth was almost fully driven by the EU (+23.7% YoY). Expressed in EUR and GEL remittances remained stronger (+12.1% YoY and +10.0% YoY) reflecting the USD appreciation.
  • Total bank loan portfolio increased by 17.2% YoY in January 2019, excluding FX effect. Impact of retail regulations introduced in January was already reflected in slower household credit growth. GEL liquidity is favorable mostly owing to the acceleration of fiscal spending in December 2018 and NBG’s FX interventions. 
  • Countercyclical buffer remained unchanged at 0%. Loans to GDP ratio stays above its long term trend when measured at current exchange rate reflecting GEL depreciation effect. NBG expects introduced macro prudential regulations to align credit growth to its more sustainable level.
  • Annual inflation stood at 2.3% YoY in February 2019, almost unchanged from the previous month. On seasonally adjusted annualized terms, estimated inflation stood at around 2.5% in the same month.
  • As of March 1 2019, despite appreciation pressures throughout February estimated GEL REER depreciated slightly compared to its January level. NBG‘s interventions have played an important role on FX market also in February. GEL REER stayed weaker compared to its long term trend and medium term average.
  • On the back of higher inflows, lower oil prices and likely weak domestic demand, NBG bought 50 mln USD on interbank FX market in February 2019 — an estimated 5% of the same month GDP. In addition, banks likely exercised the substantial portion of the GEL call options worth 150 mln GEL (or around 56 mln USD).


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