Baku, Azerbaijan, October 9
By Tamilla Mammadova – Trend:
Georgia’s economy expanded by 4.7 percent in the first half of 2019, driven by strong exports and consumption, Trend reports referring to the World Bank report.
Growth is projected to slow to 4.4 percent for the full year as a ban on flights from the Russian Federation impacts tourism. Growth will moderate in 2020 as the external outlook weakens, but is projected to recover in 2021, helping to improve living conditions, the report said.
Real GDP growth accelerated in the first half of 2019, to 4.7 percent (reaching 5.1 percent year on year in July). Domestic demand was supported by higher consumption in the first half of the year. Investment contracted as infrastructure projects were completed and foreign direct investment (FDI) declined.
Net exports improved considerably reflecting slowing imports and increased re-exports of used cars and copper ore. On the supply side, all sectors except for mining and electricity production contributed positively to growth. Construction sector output, which contracted during most of 2018 and early 2019, appears to have bottomed out.
However, recent developments (a ban on flights from Russia imposed by the Russian authorities, the TBC Bank management case, and a reshuffling of the government) have weakened sentiment and will negatively affect growth.
Poverty declined as economic growth created jobs. The unemployment rate fell to 12.7 percent in 2018, helping to lower the poverty rate, as measured at the national poverty line, to 20.1 percent. Rural poverty fell by 3.4 percentage points, while urban poverty fell by 0.6 percentage points. These trends continued in the first half of 2019 as the unemployment rate declined further, to 12 percent. While increased employment opportunities mostly benefited the country’s urban population, the urban unemployment rate remains high (at 17 percent).
Some of this improvement may be reversed as tourism is affected by the Russian flight ban and higher inflation affects purchasing power. Annual inflation accelerated to 4.9 percent in July due to the weakening of the lari and higher tobacco excise taxes. In response, the authorities tightened the policy interest rate in early September by 50 basis points to 7 percent.