Growth: The economy maintained its robust growth, with real GDP rising by 7.7% in June, as we had anticipated, following a 7.0% increase in the previous month. Overall, in 1H23, growth stood at 7.6% and we project a growth rate of 6.8% for the full year 2023.
The expansion in June was mainly fueled by the construction, trade, and financial sectors, while the transport and utilities sectors experienced a contraction.
Inflation: In Jun-23, headline CPI retreated further to 0.6% from 1.5% inflation in previous month. This decline was primarily attributed to a reduction in inflation for mixed goods (-6.8% y/y) and imported goods (-5.9% y/y). Additionally, there was a slowdown in domestic inflation (+8.5% y/y in June vs. +9.1% y/y in May). Accordingly, we revised average annual inflation forecast downwards to 2.4% for 2023, from the previous forecast of 3.1%.
Monetary policy: On 21 June 2023, the NBG decided to maintain its key rate at 10.5%, following a 50bps cut in May 2023. We anticipate another rate cut of 50bps during the meeting on 2 August 2023. Given the ongoing disinflation trend, there is a possibility of an additional 100bps rate cut by the end of 2023. However, despite the potential easing, the lending conditions expected to remain tight due to the rising FX interest rates.
FX: The GEL deprecated by 1.0% m/m in July vs dollar. Year-to-date GEL gained 2.2%. Local currency is supported by robust FX inflows despite NBG buying FX, being a net buyer of US$ 1.06bn in 1H23, of which US$ 137.6mn purchased in Jun-23. We expect average GEL rate at 2.6 vs dollar in 2023.
