Real GDP growth was 7.7% y/y in Jun-23
Georgia’s economy maintained robust growth, with real GDP increasing by 7.7% y/y in Jun-23, in line with our expectations, following a growth of 7.0% y/y in previous month. Cumulatively, real growth came in at 7.6% y/y in 1H23. Construction, trade and financial sectors primarily drove the expansion in June, while the transport and utilities sectors experienced a contraction. We expect GDP growth at 6.8% in 2023 (see more here).
Annual inflation was 0.3% in Jul-23
Annual CPI inflation retreated to 0.3% in Jul-23 from the previous month’s 0.6%. 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. By categories, annual inflation was mostly driven by price changes in transport (-12.1 % y/y, -1.53ppts), healthcare (-6.9% y/y, -0.67ppts), utilities (+4.9% y/y, 0.51ppts), alcoholic beverages and tobacco (+6.3% y/y, +0.43ppts), and food and non-alcoholic beverages (+1.2% y/y, 0.39ppts). Monthly inflation remained almost unchanged in July.
Given the prevailing inflationary trend, we revised average annual inflation forecast downwards to 2.4% for 2023, from the previous forecast of 3.1%.
NBG cuts the key rate to 10.25%
The NBG cut its key rate by 25bps to 10.25% on 2 August 2023 meeting, the second rate cut this year. The decision was prompted by a significant decline in annual inflation, mainly influenced by lower prices for raw food and oil in international markets, reduced international shipping expenses, and the appreciation of the GEL. According to NBG’s current projections, inflation is anticipated to stay below the 3.0% target level in the upcoming months and stabilize around it in the medium term. Additionally, the NBG revised Georgia’s economic growth forecast for 2023 to 6.0%, up from the previously projected 5.0%. The regulator also signaled that it intends to continue reducing the monetary policy rate at a moderate pace, considering inflation risks. The next committee meeting is scheduled for 13 September 2023.
