BAKU, Azerbaijan, December 25
By Tamilla Mammadova – Trend:
Georgian economy was negatively affected by the COVID-19 pandemic this year because of the lockdown and halt in international tourism, Trend reports via Georgian Galt&Taggart analytics company.
Based on preliminary estimates, the economy contracted by 5.8 percent in 9M2020, with GDP contraction easing to 5.6 percent in 3Q2020 from a 13.2 percent decline in 2Q2020 (notably, Geostat revised downwards both 2Q2020 and 3Q2020 GDP growth figures from 12.3 percent and 3.8 percent rapid estimates, respectively).
However, rising COVID cases in recent months deteriorated sentiments and this along with post-election political uncertainty weighed on lari. With the absence of international tourism, hospitality and other tourism-related sectors were hit hard, but with lockdown measures re-imposed in other countries, Georgia’s exports recovery worsened from October through November 2020 also.
Meanwhile, remittances continued strong growth supporting domestic demand along with the sizable fiscal stimulus and implementation of public capex.
"We expect the economy to rebound to 5-5.5 percent growth in 2021 assuming tourism to recover to 50 percent of its 2019 level, which will support tourism-related sectors to turn into growth. In this regard, positive news on vaccine and the fact that over 70 percent of total arrivals travel by car to Georgia make us optimistic on tourism recovery dynamics. Without a recovery in tourism, we expect growth at around 3.7 percent in 2021, and in this scenario, we project economic activity to be positive in agriculture, mining, manufacturing, and construction, amongst others. We note that, with limited room for the rate cut in 2021, the fiscal policy will continue to have a central role in stabilizing the economy, with fiscal deficit set at 7.6 percent of GDP," the report said.
Fiscal support is a significant driver of recovery in 2020, with targeted stimulus for affected businesses and households. Notably, public capital expenditure increased by 14.8 percent year-on-year in 10M2020, with 72.8 percent of the annual plan already disbursed. Notably, tax revenue performance was better-than-expected, and the government revised the 2020 tax revenue plan up by 540 million lari (165.6 million) to 11.1 billion lari ($3.4 billion).
Importantly, the continuation of bank lending also supported the economic recovery, with credit growth at 11.4 percent year-on-year (+0.9 percent month-on-month) in October 2020 excluding FX effects.
The government’s mortgage interest rate subsidy is also supportive of bank lending, as demand for new apartments rose.
"We expect credit growth to continue in double digits in 2021, supported by growth rebound," the company said.
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