Nov 6, 2018

Monthly Update: October 2018

Monthly Update

  • In October 2018 IMF reduced growth projections for EU, Turkey, Azerbaijan, Iran while growth forecast was revised upwards for Ukraine, Kazakhstan and Armenia. Overall, softer growth is expected in major economic partners of Georgia. As a result, growth of inflows in Georgia continues to weaken but still remains in double digits in USD equivalent as of September 2019.
  • Following the sharp fall of exports to Turkey in August (-27.4% YoY), mostly driven by the one-off decline in commodity exports, the rate of decline normalized in September (-10.4% YoY). Also, possibility to export commodities to alternative destinations should be taken into account. Total inflows from Turkey including exports, tourism and remittances declined by 16.1% YoY in September. Overall developments in Turkey and impact on Georgia’s economy remains broadly in line with our expectations published back in August. (link to the publication). Furthermore, TRY has appreciated back much faster than expected. As of November 5 2018, estimated GEL/TRY CPI based RER was at around the March-April 2018 levels and estimated GEL/TRY PPI based RER was at around Q4 2017 levels.
  • According to the Ease of Doing Business 2019 report, Georgia ranks 6th among 190 countries surveyed globally – up from 9th position in previous year. Liberalization of the tax code was important contributor to the improved ranking. Currently tax and contribution rate as a % of corporate profits stands at 9.9%, down from 16.4% previously.
  • According to the initial estimates of Geostat, after low growth in August primarily driven by one-offs, real GDP increased by solid 5.6% YoY in September 2018. IMF revised growth projections for 2018 down to 5.0% from 5.5% projected previously.
  • Continued growth of tax revenues and moderate decline of spending resulted into budget surplus of an estimated 0.7% of GDP in Q3 2018, as opposed to 2.0% deficit in 2017. Government debt to GDP ratio declined to an estimated 40.8% in Q3 2018, down from 44.0% in 2017.
  • Gross exports of goods in USD terms rose by 17.1% YoY in September 2018, while growth in the first nine months of the year stood at 25.7% YoY. Imports went up only by 3.3% YoY in September 2018. As a result, trade balance improved by 4.9% YoY in September 2018, first time since the beginning of the year. 
  • Tourism inflows went up by 9.3% YoY in September 2018 with growth of tourists highest from EU (+34.8% YoY). Slowing growth rate of tourism inflows is mostly to be attributed to declined number of visitors from Turkey and Iran.
  • Remittance inflows increased by 5.6% YoY in September and by 16.0% YoY in the first nine months of 2018 in USD terms. Growth of remittance inflows remained strong from the EU in September (+20.6%). At the same time, remittances dropped from Russia (-7.5% YoY) and Turkey (-24.1% YoY).
  • Bank lending went up by 19.1% YoY in September 2018, excluding the FX effect. Growth of loans was driven by business and mortgage lending.
  • NBG kept policy rate unchanged at 7.0%. With the inflation close to target, NBG expects to decrease interest rates going forward, however depending on external as well as domestic developments.
  • Inflation stood at 2.3% in October 2018, 0.4 PP lower compared to annual inflation in September 2018 and close to the NBG’s 3% target.
  • The real effective exchange rate (REER) depreciated by 2.3% MoM and appreciated 6.3% YoY in September 2018. As of November 5, estimated GEL real effective exchange rate has depreciated significantly and is likely to be undervalued.