Feb 5, 2019

Monthly Update: January 2019

Monthly Update

  • In IMF’s January update of the “World Economic Outlook” global growth projections was revised downwards. ECB as well as Fed turned more dovish in their latest statements. Stronger than expected recession is projected in Turkey, however, possible impact of any adverse developments will likely be more limited on Georgia as the exposure to Turkey has diminished substantially throughout 2018. While lower oil prices appear to have moderately negative impact on inflows, Georgia’s bill on oil imports continued to decline.
  • Real GDP growth accelerated to 5.6% YoY mostly reflecting higher growth of exports in categories with larger share of domestic value added, positive impact of lower oil prices as well as the stronger public spending in November and December. Despite the very high fiscal deficit in December, full impact of spending on economy likely to be materialized in coming months.
  • As a result of the accelerated spending mostly in form of advanced payments by the end of 2018, budget deficit stood at 1.3 bn GEL in December with the full year deficit figure amounting to 1.1 bn GEL, an estimated 2.6% of GDP.
  • Gross exports of goods in USD terms rose by 14.0% YoY, while imports went down by 2.7% YoY in December. Decline of imports was evident in almost all categories of goods. Trade balance improved in second consecutive month in December.
  • Number of tourists went up by 11.6% YoY in December 2018. Growth of tourists remained highest from the EU with share in tourism inflows reaching almost 10% in 2018. Visitors also increased somewhat from CIS while declined from other countries driven by Turkey and Iran.
  • Remittance growth remained largely unchanged from the previous month and stood at 9.1% in December with largest contribution and share from the EU.
  • Bank lending growth slowed to 17.2% YoY in December 2018 from 18.9% YoY in previous month caused by continued slowdown in non-mortgage retail lending as well as some moderation of business loans.
  • National Bank of Georgia decreased the policy rate by 0.25PP to 6.75%. According to NBG, further rate cuts could follow depending on the domestic demand as well external sector developments.
  • Annual inflation increased to 2.2% in January 2019 base effect and higher excise taxes on tobacco having the strongest impact.
  • Despite strong appreciation pressures, estimated GEL REER remained broadly unchanged also in January 2019 reflecting the NBG’s record high interventions. As of February 1, estimated GEL REER remained below its long term trend as well as medium term average.
  • On the back of reasonably strong inflows, lower oil prices and likely weaker domestic demand, NBG continued to refill international reserves and purchased 85 mln USD in January, equivalent to an estimated 8.0% of the same month GDP. Sizeable USD purchases likely already in January brought NBG’s reserves above the June 2019 NIR limit set by the agreement with the IMF. Also, NBG introduced new tool for FX interventions in form of FX options. 
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