Dec 4, 2018

Monthly Update: November 2018

Monthly Update

  • Market expectations for the FED rate path in 2019 are shifting towards a slower pace of policy tightening, following more dovish FED statement. OECD projects short-lived contraction in Turkey, before recovering to around 2.7% growth in 2020. In October growth of exports, tourism and remittances stood at 13.8% YoY in USD terms - stronger growth compared to the previous month. Oil prices crashed last month amid concerns regarding the global demand growth as well as increasing supply levels. Increasing optimism that major oil producing countries will continue to manage the supply levels, translated into some recovery of prices by the end of November.
  • GDP increased by solid 6.7% YoY, driven by the broad range of sectors. Strong growth reflects acceleration of tourism and remittance inflows as well as continued strong expansion of lending to the economy. GDP growth amounted to 5.1% in 10m 2018.   

  • Fiscal remained in surplus in October 2018 as well, reflecting the continued growth of tax revenues and declined spending. Budget surplus amounted to c. 40 mln GEL or 1.1% of the estimated monthly GDP.

  • Gross exports of goods in USD terms rose by 15.0% YoY in October 2018, while growth in the first ten months of the year stood at 24.5% YoY. Imports went up by 18.7% YoY in October 2018. Trade balance worsened by 20.7% YoY in October.

  • Number of tourists went up by 15.1% YoY in October 2018, compared to 9.1% growth in September 2018. Growth of visitors remained highest from EU (+36.1% YoY).

  • In October 2018 remittances increased by 11.6% YoY, 6PP higher compared to the growth in September.

  • Bank lending went up by 19.2% YoY in October 2018, excluding the FX effect. Growth of loans was driven by business and mortgage lending.

  • Countercyclical buffer was left unchanged during the Financial Stability Committee meeting on November 21. According to the committee, the current level of credit to GDP is above its long term trend. Nevertheless, the increase of buffer was not deemed necessary as upcoming prudential regulations are likely to push the credit to GDP ratio closer to its long term trend.

  • Inflation stood at 1.9% in November 2018, 0.4 PP lower compared to annual inflation in October 2018 and below the NBG’s 3% target. On seasonally adjusted terms price increase amounted to an estimated 0.35% in November 2018, indicating that seasonally adjusted annualized rate is above but close to the target and currently below target inflation reflects base effect.

  • In November 2018, the National Bank of Georgia intervened on the FX market and purchased 20 mln USD.

  • The real effective exchange rate (REER) depreciated by 3.8% MoM and appreciated 1.5% YoY in October 2018. As of December 2, estimated GEL real effective exchange rate has depreciated substantially and is likely to be undervalued.