Growth: Georgia’s economy grew by 5.8% in Jan-24, after a 8.3% y/y growth in previous month. In January, real growth was recorded in the construction, financial, and ICT sectors. In contrast, the trade, real estate and manufacturing 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 Jan-24, annual inflation in Georgia dropped to zero, after a 0.4% y/y inflation recorded in Dec-23. The subdued inflation was mainly driven by a 2.8% y/y decline in food prices, along with reduced inflation for imported and mixed goods by 0.2% y/y and 4.2% y/y in January, respectively. Moreover, domestically produced goods inflation slowed to 2.7% y/y in Jan-24 (down from 3.6% y/y in previous month) and core inflation reduced to 1.2% y/y from 1.9% y/y in previous month. We forecast average annual inflation at 3.0% for 2024.
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 gradually to 8.5% in our baseline scenario by end-2024.
FX: The GEL appreciated by 1.1% vs dollar year-to-date, indicating sustained FX inflows. As we expect solid external inflows to continue, we anticipate average GEL rate at 2.65 against the dollar and at 3.0 against the Euro in 2024, respectively.
