Growth: Georgia’s economy grew by 9.2% in May-24, after a 11.8% y/y growth in previous month. Cumulatively, real GDP growth came in at 9.3% y/y in 5M24. In May, real growth was recorded in the ICT, professional & scientific activities, financial & insurance, construction and transport sectors. Due to stronger-than-expected growth in 5M24, we raised our real GDP growth forecast to 7.0% from 6.0% for the full-2024 year.
Inflation: In May-24, annual inflation rose to 2.0%, up from the 1.5% print in previous month. This increase was primarily driven by a 3.8% y/y rise in imported inflation (+3.5% in Apr-24), followed by a 2.5% y/y increase in domestic inflation (flat m/m). Notably, core inflation, excluding volatile food, energy and tobacco prices, reduced to 1.7% y/y in May-24 from 2.3% y/y recorded in previous month.
We forecast average annual inflation at 3.0% for 2024.
Monetary policy: On June 19, 2024, the NBG’s Monetary Policy Committee kept its key rate unchanged at 8.0% due to heightened uncertainty from domestic and external factors, which have increased inflationary risks. In this context, the regulator noted that exchange rate volatility led to inflationary pressures from imported goods, compounded by the rise in global food prices over the past two months. We anticipate that the NBG will maintain this rate throughout 2024.
FX: The weakening of the GEL continued in June despite strong fundamentals. As in May, the GEL was affected by one-off transactions in June, prompting the NBG to intervene and sell US$ 60mn. Overall, the NBG sold US$ 177.8mn during May and June, though it remains a net FX buyer with an estimated net purchase of around US$ 100mn. We anticipate an average GEL rate of 2.78/1$ for 2024. Notably, CA deficit remained low at 5.0% of GDP in 1Q24 and we project 5.6% of GDP for the full year, suggesting limited pressure on GEL from external balance.
