Growth: Georgia’s economic growth accelerated, up by 9.5% in Feb-24 (in line with our expectation), after a 5.8% y/y growth in previous month. Cumulatively, real GDP growth reached 7.7% y/y in 2M24. In February, real growth was recorded in the manufacturing, construction, professional & scientific activities, ICT and transport sectors. In contrast, the energy and mining sectors contracted during the same period.
For 2024, we forecast real GDP to grow by 6.0% in our baseline scenario and by 7.0% in upside scenario.
Inflation: In Feb-24, annual inflation was 0.3%, following zero inflation in previous month. The inflation observed in February was primarily driven, on one hand, by a 3.1% y/y decline in mixed goods prices and, on the other hand, by a 2.4% y/y inflation in domestically produced goods. However, the latter exhibits a deceleration trend. Notably, imported inflation turned positive in February (+0.2% y/y) for the first time since Feb-23. Core inflation, excluding volatile food, energy and tobacco stood at 2.4% y/y in Feb-24.
We forecast average annual inflation at 3.0% for 2024.
Monetary policy: On March 13, 2024, the NBG’s Monetary Policy Committee reduced its key rate by 75bps to 8.25% considering the low inflation environment along with reduced inflationary risks related to Red Sea tensions. Additionally, the decision was supported by the neutralization of demand-driven inflationary pressures, as local economic activity is gradually approaching its potential level.
We expect a further 25bps rate cut to 8.0% in our baseline scenario by end-2024.
FX: The GEL remained stable at around 2.7 vs. the US dollar year-to-date amid solid FX inflows. Notably, NBG purchased US$ 85.6mn in 2M24. We anticipate an average GEL rate of 2.7 against the dollar and at 3.0 against the Euro in 2024, respectively.
