Growth: Georgia’s economy grew by 6.2% in Oct-23, in line with our expectations, after growing by 5.1% in September. Overall, in 10M23, growth reached 6.9%, in line with our 6.8% growth projection for the full year 2023. For 2024 we forecast 5.0% growth.
In October, real growth was recorded in the financial, trade and transportation & storage sectors. In contrast, the manufacturing and real estate sectors contracted during the same period.
Inflation: Annual CPI inflation remained stable at 0.8% y/y compared to the previous month, thanks to a decline in prices for food and non-alcoholic beverages offsetting price increases in energy products. In October, both imported and mixed goods inflation stayed in negative territory, and domestic inflation reduced further to 4.5% y/y from 5.3% y/y in previous month. Importantly, core inflation (non-food, non-energy, non-tobacco) also decreased to 2.1% y/y in Oct-23 vs 2.5% y/y in Sep-23. We forecast average annual inflation at 2.7% for 2023 and 3.5% for 2024.
Monetary policy: On 29 November 2023, NBG’s Financial Stability Committee decided to permit banks to gradually build a neutral countercyclical buffer, starting by 0.25% in Mar-24 (instead of initially planned 1%) and reaching 1.0% by Mar-2027. At an unscheduled Monetary Policy Committee meeting, the upper reserve norm on short-term FX liabilities was reduced from 25% to 20%. According to the regulator, these modifications aim to furnish the local market with increased FX liquidity and enhanced flexibility for buffer accumulation, aiming to mitigate the impact of tightened financial conditions globally. We anticipate these measures to support economic growth and GEL. In the final December meeting this year we expect a 25bps rate cut to 9.75% and a further 100bps cut to 8.75% by end-2024.
FX: The GEL was flat m/m in November against the dollar. Our outlook on the GEL remains unchanged and we anticipate the GEL vs. US$ at around 1$/2.7 throughout 2023 and into 2024. Notably, the NBG is a net buyer of US$ 1.3bn YTD.
