Macro Insights: Stronger than 5.5% Baseline

10 May, 2022
  • The latest dynamics are broadly in line with our expectations on the international level, however, the Georgian economy seems to grow even faster than implied in our earlier 5.5% scenario
  • March growth estimate came in at 10.6% reflecting the increased activity in a broad range of sectors
  • Notably, the seasonally adjusted monthly annualized GDP was at 6.7%
  • From the drivers, exports and tourism inflows supported by the migration impact were stronger than expected, remittances broadly in line with expectations, while imports and credit somewhat weaker
  • As for the fiscal stance, it was contractionary taking into account a surplus in the first quarter compared to a large deficit a year ago. Assuming around 4.5% deficit for the FY 2022, this implies higher fiscal stimulus in the remaining part of the year
  • Definitely, uncertainties remain high, however recent data release at least may indicate to an even stronger than our already quite bullish outlook. This appears to be true especially when April available preliminary indicators, such as sectoral turnovers and tourism and remittances dynamics are taken into account. In particular, despite a very strong base effect a year ago, based on those inputs, our nowcasting model does not necessarily point to a large YoY drop in April. In fact, a moderate positive growth is not ruled out
  • In the baseline scenario, we expect 2022 YE inflation at around 9.5% instead of earlier 8% mainly on the back of higher oil price projection and stronger than expected inflation in April. Nevertheless, monthly inflation rates are still expected to moderate in the second half of the year
  • On the GEL side, our best guess would be the NBG to keep policy rate unchanged, keeping in mind broadly neutral projection for the exchange rate
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