Growth: Economy continues strong growth, with real GDP up 7.5% in Apr-23, after 7.3% growth in previous month. Overall, in 4M23, growth came in at 7.3%. In April, construction, financial, trade, ICT, transportation and storage sectors drove the growth. Meanwhile, manufacturing, and real estate sectors contracted.
We forecast Georgia’s economy to grow by 5.8% in 2023.
Inflation: In Apr-23, headline CPI receded to 2.7% y/y, marking the 7th consecutive monthly decline. This decrease in inflation reflected a decline in imported inflation, driven by falling global commodity prices and international shipping costs along with GEL appreciation. While there is a slowdown in domestic inflation, it remained high at 10.6% y/y in April. We expect disinflation to continue and forecast average annual inflation at 3.1% for the entire year and end-2023 inflation at 1.0%.
Monetary policy: The NBG cut its key rate by 50bps to 10.5% on 10 May 2023 meeting. The decision was prompted by a significant deceleration of annual inflation, which dropped to 2.7% in April 2023 from 9.4% in January 2023. Considering disinflation trend, we see room for additional 100-150bps rate cut through the end-2023.
FX: The GEL deprecated by 3.8% m/m in May, but still gaining 4.4% vs dollar year-to-date. We attribute the recent depreciation to one-off factors, as FX inflows remain robust and tourism revenues are growing strongly. Notably, NBG purchased US$ 782.9mn in 4M23 (o.w. US$ 322.4mn in April), resulting record high gross international reserves reaching US$ 5.1bn in April 2023. We expect average GEL rate at 2.55 vs dollar in 2023.
