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S&P revises its assessment of Georgia's economic risk trend

Business Materials 13 April 2020 15:13 (UTC +04:00)
S&P revises its assessment of Georgia's economic risk trend

BAKU, Azerbaijan, April 13

By Tamilla Mammadova - Trend:

Standard & Poor's rating agency (S&P) believes Georgia will experience a recession in 2020 as COVID-19 restrictions put pressure on economic activity both in Georgia and globally, Trend reports via the S&P.

"We think that tourism-related businesses, which represent an important share of Georgian economy, will likely be among the most affected sectors, experiencing negative consequences of disrupted cross-country and internal travel and rapidly decreased tourism. We believe the transport and commercial real estate segments will also take a hit in the recession. However, we think that Georgian banks' direct exposure to these sectors is not excessive and, so they will be able to withstand expected deterioration of asset quality," said S&P.

According to the agency, two billion Georgian lari (about $650 million) support package announced by the Georgian government will only partially alleviate the stress to the economy and households. Currently, S&P's base-case scenario envisages a sharp economic contraction in the first half of 2020 and a gradual recovery commencing in the second half of the year as restrictions are lifted.

"This recession, the first in 12 years, will have substantial negative implications for the banking sector, in our view, as lari depreciation from rather high dollarization of banking sector assets and liabilities, economic contraction, and related loss of employment will put the quality of loan portfolios under pressure. We therefore assume in our forecast that cost of risk for the banking sector will rise to 4 percent in 2020 from an estimated 1 percent in 2019," Standard & Poor's rating agency said.

S&P has revised its assessment of Georgia's economic risk trend to stable from positive. This reflects the implications of the upcoming recession.

"However, under our base-case scenario, the economy will be recovering in 2021-2022. The country's economy has absorbed a number of shocks and demonstrated its ability to adjust to external challenges in previous crises," the agency said.

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