Real GDP growth was 5.8% y/y in Aug-23
Georgia’s economy expanded by 5.8% y/y in Aug-23, in line with our expectations. Cumulatively, real growth came in at 7.0% y/y in 8M23. The growth in August was driven primarily by the financial, construction, manufacturing and trade sectors. In contrast, the real estate, transportation & storage and ICT sectors contracted during the same period. We expect GDP growth at 6.8% for the full year 2023.
CA deficit at 4.9% of GDP in 2Q23
The Current Account (CA) deficit came in at 4.9% of GDP, up from 4.6% in 2Q22, mainly due to an increased negative income balance caused by a surge in reinvestments. The merchandize trade deficit, traditionally the major contributor to deficit creation, increased by 13.0% y/y to US$ 1.2bn, as exports increased by 15.3% y/y and imports were up 14.4% y/y. Meanwhile, positive services balance grew significantly by 49.4% y/y to US$ 788.9mn, driven by ICT (+138.9% y/y to US$ 168.4mn) and tourism revenues (+34.8% y/y to US$ 1.0bn). Net FDI remained the key funding source for the CA deficit, accounting for 6.3% of GDP in 2Q23. Notably, the NBG revised 1Q23 and 2022 CA deficit figures upwards to 5.9% of GDP (up from previous estimate of 3.2%) and 4.6% of GDP (up from 4.0%), respectively.
Overall, in 1H23, CA deficit came in at 5.3% of GDP, down from 8.6% of GDP in 1H22. We forecast CA deficit at 4.5% of GDP in 2023, up from our previous forecast of 3.8%, reflecting revisions in official statistics for 1Q23 and 2022.
Bank lending increased by 14.6% y/y in Aug-23
In Aug-23, the banking sector loan portfolio increased by 14.6% y/y (+0.9% m/m), excluding FX effect, after a 14.5% y/y growth in previous month. In unadjusted terms, loan portfolio rose by 11.1% y/y (+0.5% m/m), reaching GEL 48.0bn (US$ 18.3bn), after growing 13.6% y/y in July. By sector, corporate loans accelerated further, up by 16.0% y/y growth in August (+14.7% y/y in July, exc. FX effect) and retail loans were up 13.5% y/y (+14.2% y/y in July). Notably, the mortgages growth slowed to 9.9% y/y in August (+11.3% y/y in July). In Aug-23, loan dollarization stood at 41.6% (+1.16ppts y/y and -0.84ppts m/m) and NPLs at 1.7% (-0.04ppts y/y and +0.01ppts m/m).
Bank deposits increased by 20.1% y/y (+0.4% m/m, exc. FX effect) to GEL 48.1bn (US$ 18.3bn) in Aug-23. In terms of currency breakdown, GEL deposits growth came in at 38.0% y/y (+41.2% y/y in previous month) and FX deposits growth (exc. FX effect) slowed to 7.2% y/y (+13.3% y/y in previous month). As a result, the level of deposit dollarization stood at 49.7% (-8.36ppts y/y and -0.91ppts m/m) in Aug-23.
Government targets a 2.5% deficit in the 2024 draft budget
The government has submitted to the Parliament an initial draft of 2024 state budget, which sets economic growth at 5.2% and GDP deflator at 3.0% for 2024. Fiscal deficit planned at 2.5% of GDP for 2024 at consolidated level, representing an improvement compared to 2023E. Notably, tax revenues expected to increase by 9.4% y/y to 24.9% of GDP and privatization revenues are set at GEL 350mn. Total expenditures for 2024 budgeted at 30.5% of GDP, with capex accounting for 7.6% of GDP, down from 8.6% in 2023E. Total public debt to GDP is projected at 38.2% (2023E 38.4%), reflecting reduced share of external debt (2024F 26.6% of GDP vs. 2023E 27.7%) and an increased share of domestic debt (2024F 11.7% of GDP vs. 2023E 10.7%).
NBG sold US$ 7.6mn
On 25 September 2023, NBG intervened in the FX market and sold US$ 7.6mn out of offered US$ 30mn to curb sentiment-related GEL depreciation pressure. Notably, the NBG is a net buyer of US$ 1.4bn year-to-date by our estimates.
