WB: Georgian economy expands by over 5%

Business Materials 21 November 2019 23:07 (UTC +04:00)

BAKU, Azerbaijan, November 21

By Tamilla Mammadova – Trend:

Georgian economy expanded by a healthy 5.2 percent year-on-year in September, Trend reports via the World Bank.

As reported, construction and services sectors performed well, while mining and social services contracted.

The recovery in the construction sector was also driven by accelerated public investments. On the services side, growth was registered in trade, transport and hospitality sectors.

On the demand side, improving labor markets, stable credit and higher public spending supported domestic demand, while export growth moderated.

With this, the growth rate in the third quarter of 2019 reached 5.7 percent year-on-year and in the nine months of the year 5 percent. Growth is projected to slow in the final quarter of the year in response to the monetary policy tightening and weakening household and business sentiments.

Consumer prices increased by 0.8 percent month-on-month in October as the annual inflation spiked to 6.9 percent year-on-year.

Food products contributed 4 percentage points (pp) to the inflation, while tobacco prices accounted for 1 pp. Only prices for apparel and communication services declined. The broad-based pick-up in inflation and growing inflationary expectations prompted the National Bank of Georgia (NBG) to further tighten monetary policy.

After increasing its policy rate twice in September (by accumulative 100 basis points), NBG hiked the rate by an additional 100 bps in October to 8.5 percent. NBG’s measures appear to have calmed the foreign exchange market.

The exchange rate has stabilized since, with the lari trading at around 2.96 lari/USD most recently, around 11 percent weaker on annual basis. In addition to hiking the policy rate, NBG made limited interventions in the foreign exchange market in September and reduced the reserve requirements for banks’ foreign liabilities in October.

The nominal effective exchange rate was stable in October, but depreciated by 10.5 percent year-on-year. After improving for ten consecutive months, the trade balance deteriorated in September. Export growth slowed to only 0.5 percent year-on-year and import growth accelerated to 4 percent from earlier negative rates. In the nine months of 2019, exports grew by 11 percent year-on-year while imports shrunk by 3.3 percent.


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