Georgia Country Report Jun21 - June, 2021

June 2, 2021

Summary:

Georgia’s GDP surged by 44.8% y/y in April, according to preliminary estimates from statistics office Geostat. Recoveries seen in both external and domestic demand contributed. GDP was up 8.1% y/y in January-April.

As a result of the stronger-than-expected recovery in April, Georgia's government revised its projection for full-year GDP growth to 6.5% from 4.3%. It expects even stronger growth, at 6.9%, in 2022.

The country's exports expanded by 70% y/y to $378mn in April, consolidating the robust 30% y/y advance seen in March to $326mn, according to Geostat.The government revised the budget deficit target to 7.1% of GDP and will operate adjustments on the expenditures side as a result.

The Asian Development Bank (ADB) envisages 3.5% of growth in its latest forecast for Georgia’s GDP dynamics in 2021, which would not fully offset the 6.2% contraction of last year. The International Monetary Fund (IMF) expects only a 3.5% expansion this year to follow the steep 6.1% contraction recorded in 2020, according to its World Economic Outlook (WEO) report released on April 6.

Georgia faces significant consumer price inflation (+7.2% y/y in April) and rising production costs incurred by companies, likely to advance further driven by trends seen on global commodities markets, are adding to other inflationary drivers. That is forcing the central bank to maintain its hawkish monetary policy, with the benchmark rate at 9.5% currently.

The number of formally employed Georgians decreased by 12.2% y/y in Q1 to 782,000, implying that around 108,000 jobs were wiped out by the coronavirus-driven crisis. Georgia’s unemployment rate hit 21.9% in Q1, up by 3.7pp y/y. While this was not the highest unemployment in recent years (the jobless rate was higher in Q1 of 2018), the low number of jobs is a more significant concern for social impact and economic growth.

On the political front, United National Movement (UNM), Georgia's biggest opposition party by the number of MPs (it holds 34 of the 60 seats not held by the ruling Georgian Dream party), has announced the end of its boycott of parliament, which it has maintained since last year's October/November general election.

However, the party will not sign the document of compromise proposed by European Council President Charles Michel to end Georgia's political crisis, Nika Melia, its chairman, said. He implied that one of its components, namely an amnesty bill that would include those charged with offences after demonstrations took place at the parliament building in June 2019, was unacceptable to UNM. The bill was initially announced as part of the compromise document as a way to secure the release of Melia from pre-trial detention.

Georgian Dream and most of the opposition parties have accepted the agreement proposed by Michel. The document has also been signed by several individual MPs of UNM.

A quick resumption of the global tourism industry and the normalisation of relations between the ruling and opposition parties are the main elements that would in coming years address the damage inflicted on Georgia’s economy.

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