Renaissance Capital: Georgia’s GDP demonstrating decent rate of recovery

Business Materials 28 August 2020 17:08 (UTC +04:00)
Renaissance Capital: Georgia’s GDP demonstrating decent rate of recovery

BAKU, Azerbaijan, August 28

By Tamilla Mammadova – Trend:

Despite a significant decline in the tourism industry, Georgia’s GDP is demonstrating a decent rate of recovery, Trend reports via the Renaissance Capital’s report.

"We expect the contraction of Georgian economy in 2020 to 5.8 percent year-on-year," the report said.

As reported, economic activity has continued to recover in Georgia, despite the fact that revenue from international tourism is still lagging.

"We believe a full-scale opening of borders could be postponed to first quarter of 2021, as the 2020 high season is close to its end while external COVID-19 risks remain high. This shifts our forecast to our second wave scenario, with an 5.8 percent year-on-year economic contraction in 2020," the report said.

The report said a decent adjustment in imports, which drove an improving trade balance, and a rebound in the inflow of remittances (22 percent year-on-year growth in July) have supported robust dynamics of the lari exchange rate in Georgia.

"A sustainable inflow of financing from international financial institutions (IFI) and a reorientation of Georgians to domestic tourism this summer also helped the external balance," said the report.

"We expect the current account deficit in 2020 at 9.5 percent of GDP and 5-6 percent of GDP in 2021-2022. We forecast the lari at 3.10 per 1 USD by end of 2020," the company said.

According to the report, the National Bank of Georgia (NBG) in August continued its gradual monetary policy easing, aiming to balance risks for inflation, economic activity and the lari.

"We expect inflation to keep decreasing and hit the 3 percent target in first half of 2021. The policy rate was cut to 8 percent and we forecast it at 6.5 percent by end of 2020 and 6 percent by end of 2021. This, together with the sustainable position of the banking sector and government assistance, should support solid credit activity," the report said.

Fiscal policy is providing decent support to the economy in 2020, with anti-crisis assistance to business and households. Meanwhile, thanks to efficient precautionary measures, the number of COVID-19 cases in Georgia remains the lowest in the region.

"Despite an expansion of the fiscal deficit in 2020, we expect the fiscal position to remain robust in the medium term, providing scope for a spread compression on the sole Georgian eurobonds, which we assume will be refinanced in 2021," the company said.


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