Georgia, the small South Caucasus country of 3.9mn, grew by 4.9% y/y in the first half of 2017 and 4.7% in the first three quarters . The Georgian economy decelerated from 2.9% in 2015 to 2.7% in 2016 as a result of the wider economic slowdown experienced by Georgia’s main trade partners - Azerbaijan, Turkey, Armenia and Russia. Nevertheless, Georgia has been doing well compared to its regional peers and is expected to remain the fastest growing economy in the South Caucasus this year.
Poised to grow by over 4% in the next two years, the Georgian economy has attracted more foreign direct investment (FDI) compared to neighbouring countries thanks to higher overall GDP growth, business friendly policies, and the development of sectors like gas transit, real estate, transport and tourism. In September alone GDP expanded by 5% y/y.
On the political front, the ruling Georgia Dream party won the local elections held on October 21 by a landslide. Led by ex-football star Kakha Kaladze, who is now the new mayor of Tbilisi, Georgian Dream candidates won most of the mayoral seats in the country’s six largest cities with an unequivocal 50% or more of the votes. Promises to expand Tbilisi's economy by boosting tourism, simplify bureaucracy and build a new transportation network were central to Kaladze’s platform.
Georgian President Giorgi Margvelashvili has used his veto power to oppose a controversial new draft of the constitution that will bring about changes in how the president and MPs are elected in the country. Margvelashvili's veto is symbolic, because the ruling Georgian Dream party has an absolute majority in parliament and can - and is likely to - overturn it.
On the economic front, Caucasus “golden triangle” cooperation stems ahead as the Baku-Tbilisi-Kars (BTK) railway line was ceremonially opened at the port of Alyat near the Azeri capital on October 30. The 826km railway connects Azerbaijan’s Caspian coast to Turkey via Georgia, and, as top officials from the participating countries stressed at the launch, will considerably cut travel time between China and Western Europe. The project has been in the making for over a decade.
Furthermore, macroeconomic conditions are expected to improve in the short term, according to a report by Fitch Ratings on September 22. The current account deficit is expected to fall to 11.3% of GDP in 2017 and 10.2% in 2019. Consumer price inflation is expected to average 5.6% by the year-end and 3.5% in 2018 and the government budget deficit to narrow from 4.1% of GDP in 2016 to 3.9% in 2017 and 3.5% in 2018. GDP growth is expected to pick up to 4.5% in 2017 and to remain at that level in the next two years.
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