Economic activity has been stronger than expected, with real GDP growth estimated at 10.5% y/y in the first half of 2022. This growth has been driven by transportation, energy, hotels and restaurants, and industry. Construction permits increased by 15.6% during the first half of 2022 y/y, suggesting a recovery in domestic investment.

The International Monetary Fund (IMF) has dramatically increased its forecast for Georgian growth from 3.2% to 9% for this year as “expected negative effects of the war in Ukraine have not materialised so far”.
At the end of a mission to Georgia from September 8-14, the IMF issued a press release on September 15 that reported that, “despite a challenging external environment, the Georgian economy is set to achieve strong growth and buoyant fiscal revenues this year”.

The IMF based the huge growth revision on a faster-than-expected recovery of tourism, a surge in inbound money transfers, and immigration-related flows that have helped strengthen the external position and sustain domestic demand. However, IMF also urged that there are notable downside risks including a sharper slowdown in major trading partners, tighter global financial conditions, possible weakening of tourism and other external inflows, and sustained high commodity prices.

The World Bank upgraded its forecasts for Georgia on account of the strong performance recorded during 2022, with growth projected to reach 8.8% by the end of 2022.
Inflation is expected to remain in double digits in 2022, although price pressures are likely to diminish towards the end of the year. Inflation is expected to decline in 2023 and beyond, as international oil prices and supply-side bottlenecks ease.

EU foreign policy chief Josep Borrell said on September 6 that Georgia needs to accelerate reforms in areas such as the rule of law, the independence of justice, and media freedom before it can be granted the status of a European Union membership candidate. In June, EU leaders granted Ukraine and its neighbour Moldova candidate status, while Georgia, another post-Soviet state, was told it would get the same once it had implemented more recommendations.

The Georgian Parliament will create five working groups to handle the conditions underlined by the European Union for granting the country membership candidate status, announced Parliament's Legal Affairs Committee on August 4.

After peaking in June, inflation has eased slightly, reaching 10.9% y/y in August. Higher food and energy prices (as well as utility costs) account for most of the inflation this year. According to high-frequency surveys from May 2022, about three-quarters of the respondents from low-income households reported having reduced food consumption in response to rising prices.

The National Bank of Georgia (NBG) has kept the monetary policy rate unchanged since March, at 11%, after gradually increasing the rate since March 2021 by a total of 300 bps. The bank said that "inflationary pressures remain quite high both in Georgia and in the rest of the world", and added that international sanctions imposed on Russia in connection with the invasion of Ukraine and additional disruption to supply chains made food, raw materials and energy resources much more expensive in the world markets.

The unemployment in Georgia fell to 18% in Q2, according to Geostat. The number of hired employed increased by over 4.4%, reaching 867,900 individuals.

In trade and transport related news, the Trans-Caspian International Transport Route (TITR) is gaining importance as trade through its member states is growing amid the necessity for more trade route volume that bypasses heavily sanctioned Russia. Money inflows could last longer than initially expected, and Georgia could benefit from some trade diversion as transport corridors are reconfigured.

Prime Minister Irakli Garibashvili said the profit of Georgian Railways had hit a "record high" of GEL161mn ($59 mn) in the first half of the year. During the August 15 cabinet meeting, the prime minister announced that the increased freight traffic through Georgia had increased revenues for the company.

In January-July, exports grew by 36% y/y in nominal terms. Merchandise exports growth was driven by both increased demand for key commodities (copper ore, ferroalloys, nitrogen fertilisers) and higher prices. Imports expanded by 34% y/y, leading to the widening of the trade deficit by 33% y/y. This has been partly compensated by the recovery in tourism arrivals and a surge in net volume of money transfers (69% y/y) driven by inflows from Russia.

Foreign direct investment in Georgia amounted to $351.8mn in Q2, a 9.1% y/y. According to the statistics service, the expansion is mostly due to a rise in allowed capital and reinvestment indicators.
The United Kingdom ranks first in terms of investment in the country, with $64.7mn. The largest share of foreign direct investment was $76.6mn, which fell on the energy sector.

In Georgia, revenues from international visitors are running at a record high in 2022. According to the National Bank of Georgia, the country received $476mn in income from international visitors in July, which is almost $270mn more y/y. For the first time after the pandemic, the revenue from travel in January-July exceeded $1.6bn, constituting 87.4% of the figures for 2019.

Money transfers from Russia to Georgia soared 6.5 times in Q2 to $678mn, equivalent to 3.6% of the country’s GDP recorded last year, the National Bank of Georgia (BNM) reported. The spike in financial flows can safely be attributed to the flow of migrants from Russia who have found at least temporary shelter in Georgia from consequences of the Ukraine war. The macroeconomic impact made by financial flows of such a magnitude cannot be ignored. It should be seen in retail sales, GDP growth and exchange rate.

Georgian plans to reduce its foreign debt to 40% of gross domestic product (GDP), PM Garibashvili said during the cabinet meeting on September 13. The budget deficit is also expected to go down to 3.2% of GDP, because of the country's "unprecedented, double-digit" growth, Garibashvili said during the cabinet meeting on September 13. The initial budget draft envisaged a budget deficit of 4.4% of GDP and a foreign debt of 51% of GDP.

Georgia’s banking sector indicators remain healthy. By the end of July, return on assets and return on equity reached 3.1% and 24.9%, respectively.

Georgian commercial banks' financial reports indicate that 14 banks in the country together earned a net profit of GEL836mn ($285mn) in the first half of 2022. According to the Banking Association of Georgia, 95% of these profits were attributed to the country's two largest banks, TBC and Bank of Georgia. In 1H22, the banks received interest income of GEL2.7bn ($919mn), most of which stemmed directly from loans made to citizens and businesses.

On the political front, Georgia’s ruling political party Georgian Dream has announced plans to reform the country’s judiciary. Anri Okhanashvili, a Georgian Dream MP and chairperson of the Legal Issues Committee, presented an action plan for the judicial reforms on 3 October.

The reform plans include, among other things, ensuring a sufficient number of judges and court officials to carry out duties within a reasonable timeframe, reducing the number of active cases in the courts by offering alternative means of resolving disputes, improving the professional development of judges and court officials, improving transparency within the judicial system, and improving the digital infrastructure.

Okhanashvili stated that addressing lingering challenges within Georgia’s judicial system and improving the quality of the courts is an important step on the country’s path to EU integration.