Trade deficit of Georgia narrows by 8.3%

Business Materials 23 August 2019 18:10 (UTC +04:00)

Baku, Azerbaijan, August 23

By Tamilla Mammadova – Trend:

Trade deficit of Georgia narrowed by 8.3 percent in July 2019 compared to July 2018 ($477 million), Trend reports with reference TBC Research.

The trade balance improved by 16 percent or by $83 million in absolute terms, offsetting the 13.3 percent decline (-$58 million) of tourism inflows as a result of the Russia’s flight ban and a sharp fall of visitors from Iran.

Different factors impact the dynamics of the trade balance. As the base effect, related predominantly to lower oil prices and one-off decline of BP related imports, dissipates, the trade balance is going to worsen. Higher fiscal spending in 2019 also supports the stronger domestic demand, including imports, the report said.

On the contrary, weak retail, especially non-mortgage lending, had negative impact on the domestic demand, with higher impact on imports. At the same time, a weaker lari exchange rate improves the trade balance reflecting the both balance sheet (income effect) as well as some expenditure switching (substitution) effects with time lag assuming the trade in goods is elastic.

According to the TBC Research, lower GDP growth as a result of lower tourism inflows will also have negative impact on imports of goods. As for the prices, in July as well as in previous periods, it appears that the prices of exports and imports are increasing at a similar rate, with no indication of overall relative gain in price competitiveness other than possible positive impact on exporters’ profit margins due to lower price increase on domestic inputs.

This is probably related to some price stickiness in USD as well as to the pricing-to-market effects, said the report.