Despite warnings from the World Bank, the IMF and some Rating Agencies that the continuing protests in Tbilisi and the deteriorating relations with the European Union will have a negative impact on Georgia’s economy this year, the evidence so far is that this is not happening. Or at least not yet. The main reason is, despite the strained relations with Brussels and threats of major sanctions from the US Congress, Georgia has become too important to push too far away from the West.

Ever since last October’s controversial parliamentary election, which started the still continuing protests, and the government’s decision to suspend EU Accession talks (November last year), an action which greatly invigorated and expanded the protests, there have been predictions of an imminent increase in the intensity of protests and a corresponding negative impact on the economy. The assumption being that the domestic disruption would hit growth and that the EU and the US would impose damaging sanctions which would isolate the country.

Nine months after the election, the protests are continuing, and several EU member states are adding some ruling party officials to travel bans. But the threat of major sanctions has not materialized into any specific actions and the economy reported growth of almost 9% y/y through the first five months of this year (the most recent update). That said, challenges remain and, in some areas of the economy, are getting worse. The likelihood is that growth in the second half of this year will be lower, but not to the extent predicted at the start of the year on the assumption of disruptive protests and western sanctions.

The economy is becoming used to the new norm of protests and threats of sanctions and is in much less danger of collapse

The EU continues to make very strong threats to adopt sanctions (at a country level because the EU cannot get consensus for group sanctions) and to impose some restrictions, e.g. visa issuance, on the general population. But, so far, the threats remain just that. The reason is because Georgia has become a strategically important partner for the EU, and the US, whether either likes it or not.

The Middle-Corridor (i.e. TRACECA) is the EU’s alternative route to China by-passing the Russia routes. The EU and EBRD is already investingbns of dollars to expand the route via Georgia and Azerbaijan to the Caspian Sea and then on to ports in Kazakhstan and Turkmenistan in Central Asia for the land journey to China. Brussels will not want to risk that route becoming compromised or even closed by retaliatory action from Tbilisi. China is also betting heavily on this route and plans to investbns of dollars developing the Anaklia Port (Chinese investors have a direct 49% stake) on the Black Sea.

Georgia is also a vital link in the so-called Green Energy Corridor which is the EU’s plan to import green energy (generated by gas or renewable energy sources) from Central Asia and Azerbaijan across the Black Sea to Eastern Europe. Azerbaijan is the main driver of this project, although it is now also fully embraced by the EU, and is proposing two routes to Europe, via Georgia (the first stage) and via the controversial Zangezur Corridor to Türkiye and then onwards to southern Europe. Importing the so-called green energy from Central Asia is one of the only ways that the EU will meet its emission targets in early next decade

Georgia is also expected to be a route for more Kazakh oil heading to Western markets. Currently the country is heavily dependent on the CPC pipeline via Russia’s Novorossiysk Port on the Black Sea. It has significantly expanded oil production – to now over 2.1mn barrels per day - and is looking for new export routes by-passing Russia to the EU market. Azerbaijan is unwilling to accommodate too much Kazakh oil in the BTC pipeline because of a fear that the Kazakh oil will dilute the higher graded, and more expensive, Azerbaijan oil. Instead, Baku wants to reopen the Supsa line across Georgia to take the additional oil to one of the Georgian Black Sea ports and onwards to a European port on the other side of the Black Sea.

The EU and the US are also looking to expand the options for exporting uranium – and eventually more critical minerals - from Kazakhstan and other Central Asian producers. Currently almost all uranium goes through Russian ports although some volumes through Georgian ports have started. The US and EU want to grow the volumes through Georgia – although the recent security fear over stolen uranium in Batumi is clearly a concern - and to reduce Russia transit dependency.

All of the above means that neither Brussels nor Washington want to isolate Georgia or to push the country closer to Russia or, eventually, China. Ideally, both the US and the EU would like to support the public protests and force a change of government, similar to the events in Ukraine in early 2014. But, for now, it seems as if the incumbent Georgian Dream government is in no danger and western governments need to thread carefully.

It is also incorrect to assume the only option for the Georgian government is “with the West or with Russia”. The government in Tbilisi is keeping Moscow at arm’s length and there is no evidence of any close Russia relationship with Georgia Dream or its sponsors. There is a pragmatic trade relationship, as one would expect given the shared border, but no obvious evidence of any Russian influence in government actions or policies. The government in Tbilisi has consistently stated it wants a Kazakh style neutral vector foreign policy. It wants to expand trade and investment with China, the EU, Russia and its neighbours in the Caucasus, including Türkiye and Iran.

This is not an interpretation accepted in Brussels or on Capitol Hill. The sponsors of the so-called MEGOBARI bill which translates into Georgian as “friend”, albeit not if you are a member of Georgian Dream, are pushing hard to have it signed into law. The bill mandates sanctions against senior officials of the government and pledges support for the Georgian people’s aspirations for Euro-Atlantic integration. But President Trump is showing no interest in signing the bill into law. He sent a relatively conciliatory message to Georgia’s President Kavelashvili to mark the country’s Independence Day on May 26^th. It seems the White House is more aware of Georgia’s strategic importance than the bill’s sponsors in Congress.

As stated, the economy will inevitably slow in the second half, but by less than had been feared. Surveys at the start of the year showed that people had become more fearful of disruption and were planning to reduce spending and save more. More recent surveys show that these fears are starting to ease. Similarly, the 1Q25 Business Confidence survey fell into negative territory for the first time since 2020 (Covid Year) as many businesses also said they planned to delay investment until the political backdrop is calmer. But the just released 2Q25 Business Survey, while still showing negative, is also showing a recovery.

Perhaps a more important medium to longer-term issue for the government is how to adapt to a ceasefire in Ukraine and the removal of sanctions (in stages) against Russia. The economy has benefited very significantly from the sanctions against Russia and the threat of mobilization which led to an influx of young Russians, most with good education and work experience. Georgian officials say that over 5,000 IT experts have moved to Tbilisi since early 2022 and they are now thinking of how to keep them long-term. That sector, in particular, helped accelerate growth in the economy to 11% in 2022; by 7.8% in 2023 and by 9.4% last year.

Cargos to Russia (from Europe via Georgian ports) have also grown substantially, e.g. passenger vehicles. In 2024 Georgian statistics show that $2.4bn worth of new and used vehicles were imported while $3.5bn worth were exported. The middle-corridor cargoes have also greatly expanded as shippers to and from China avoid the Russia routes. There is a major question mark over how much of these activities will remain once sanctions against Russia start to be removed. The obvious answer is that A) the longer sanctions remain the better it will be for Georgia and B) Georgia will inevitably retain some of these activities in a world which is much more aware of the need for diversification.

That need for strategic diversification, both in terms of trade and politics, is a key reason why the Trump Administration sees no reason to hit Georgia with sanctions. It is also undoubtedly a reason why officials in Brussels, despite the constant criticism of Georgian Dream and the threats of major sanctions, are also holding back. To paraphrase Oscar Wilde’s Lady Bracknell “To lose one country (due to sanctions) may be regarded as a misfortune; to lose both looks like carelessness”