Georgia Country Report Oct17 - October, 2017

October 2, 2017

Georgia, the small South Caucasus country of 3.9mn, grew by 4% y/y in the second-quarter of the year and 4.5% y/y in the first-half. The Georgian economy decelerated from 2.9% in 2015 to 2.2% in 2016. A small and outward-looking economy, it has been hit by the economic slowdowns experienced by Georgia's main trade partner countries - 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 4% y/y in 2017, the Georgian economy has attracted more foreign direct investment (FDI) in recent years 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 the first seven months of the year, GDP has expanded by 4.4% y/y.

With 117 votes in favour and two against, the Georgian parliament approved the revised text of the draft constitution on September 26. This was the third and final reading on the subject of the new constitution, and, just as with the previous two votes, opposition MPs boycotted the process. The ruling Georgian Dream party set up a commission to draft a new constitution in order to replace the country's outdated former set of laws from December 2016.

However, the ruling party, opposition parties, the president and civil society have disagreed on multiple stipulations in the new constitution related to the method of election of parliament members and of the president, the definition of marriage and the appointment of judges to the Supreme Court, among others.

Meanwhile, the race for the capital city's 50-member municipal council and mayor is scheduled to take place in October.

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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