Georgian research company: Budget spending remains supportive of growth in Georgia
Baku, Azerbaijan, October 12
By Tamilla Mammadova – Trend:
Budget spending remained supportive of growth in August 2019 in Georgia, Trend reports via the TBC Research Group at Georgian TBC Bank.
Unlike the previous year, fiscal expenditures continue to be more balanced and expansionary.
The 2020 draft budget is certainly more socially oriented, it remains sustainable from a macro perspective when taking into account planned capital and current expenditures, and the deficit of around 3 percent in percent of GDP.
At the same time, the 5 percent growth projection for next year may be optimistic. In August, GDP growth stood at 5.8 percent primarily thanks to the low base effect. If 3Q2019 growth year-on-year is 5.5 percent, the GDP quarter-on-quarter growth in the third quarter on a seasonally adjusted basis would be close to zero, indicating a further decline in the growth rate.
Assuming inflows, fiscal and credit have approximately the same dynamics compared with the latest developments and lari strengthens against the USD by around 5 percent, annual growth in the fourth quarter should stand at around 3 percent, now also reflecting high base effect unlike third quarter.
For the full year 2019 and 2020, we project around 4.4 percent and 4.2 percent, respectively with low growth in the first half and close to or above 5 percent in the second half of 2020. The downside risks are related to a greater-than-expected worsening of the international/regional environment, a global strengthening of the USD, uncertainties related to the election year, credit slowing at an even higher pace and a further weakening of the lari.
At the same time, there are strong upsides related to the likely lifting of the flight ban, the more active path of large projects such as the Anaklia Deep Sea Port and HPPs, the rebound of the euro, an even further strengthening of the lari/USD exchange rate and a stronger growth of foreign exchange (FX) credit, especially on the retail side.
Also, the assessment of the external sector dynamics is positive, what together with the tighter monetary stance, contributes to the lari appreciation through the expectations channel.
"Unless the lari strengthens, we expect another, probably 50 basis points rate hike during meeting of National Bank of Georgia on October 23 as well as the usage of other tools", said the research.