Growth: Georgia’s economy expanded by 8.3% in Dec-23, accelerating after 5.9% growth recorded in November. Overall, in 2023, growth reached 7.0%, beating our projection of 6.8%. In nominal term, GDP increased by 10.2% y/y to GEL 79.7bn (US$ 30.3bn) and GDP per capita reached US$ 8,111 (+21.5% y/y) in 2023.
For 2024, we forecast real GDP to grow by 5.4% in our baseline scenario and by 6.0% in upside scenario (see details here).
Inflation: In Dec-23, annual inflation in Georgia stood at 0.4%, with average annual inflation reaching 2.5% for the year. The subdued inflation was driven by a 3.1% y/y decline in food prices, along with reduced inflation for imported and mixed goods by 0.2% y/y and 4.3% y/y in December, respectively. Domestically produced goods inflation reached 3.6% y/y in Dec-23 and core inflation remained low at 1.9% y/y. For 2024, we expect average annual inflation at 3.5%.
Monetary policy: On January 31, 2024, the NBG’s Monetary Policy Committee reduced its key rate by 50bps to 9.0% considering the current inflation trend. The regulator emphasizes that achieving EU candidate status has lowered Georgia’s sovereign risk premium, potentially triggering a downward adjustment to the neutral rate of monetary policy. Given the geopolitical risks, the NBG will proceed cautiously with monetary normalization.
We expect a further 50bps rate cut to 8.5% in our baseline scenario by end-2024.
FX: The GEL appreciated slightly by 0.2% m/m in January 2024 against the dollar, signifying a sustained influx of external inflows. We expect average GEL rate at 2.7 against the dollar and at 3.0 against the Euro in 2024, respectively.
