Growth: Georgia’s economic growth slowed to 5.5% in Jul-23, after a 7.7% increase in the previous month. Overall, in 7M23, growth came in at 7.2% and we project a growth rate of 6.8% for the full year 2023.
July’s growth was propelled by activities in the financial, construction, trade, and professional, scientific-technical sectors. In contrast, the manufacturing, mining and ICT sectors encountered a contraction.
Inflation: In Jul-23, headline CPI reduced to 0.3% from 0.6% inflation in previous month. This decline was mainly due to reduced inflation of imported goods (-7.4% y/y) and mixed goods (-4.5% y/y). Moreover, domestic goods inflation continued its downward trend, with a rate of 7.2% y/y in July compared to 8.5% y/y in June. Notably, core inflation (non-food, non-energy, non-tobacco) reduced significantly to 3.1% (-0.9ppts m/m) in July. We forecast average annual inflation at 2.4% in 2023.
Monetary policy: On 2 August 2023, the NBG cut its key rate by 25bps to 10.25%, marking the second rate cut this year. The regulator has expressed its intention to maintaining a gradual pace of monetary policy easing, while also being attentive to potential inflationary concerns. Looking ahead, there is a high likelihood that the NBG will reduce its key rate to 9.5% by the end of 2023.
FX: The GEL appreciated by 0.5% m/m in August vs dollar, amid robust FX inflows. Year-to-date GEL has strengthened by 2.7%. The NBG remains a net buyer of US$ 1.34bn in 7M23, of which US$ 278.5mn purchased in Jul-23. We expect average GEL rate at 2.62 vs dollar in 2023, revised slightly from the previous forecast of 2.6.
