Real GDP grew by 5.8% y/y in Feb-23
Real GDP growth eased to 5.8% y/y in Feb-23, from a 8.4% y/y growth in previous month, based on Geostat’s rapid estimates. Cumulatively, real growth came in at 7.1% y/y in 2M23 remaining robust considering last year’s high base. Our 2023 baseline growth forecast is 4.8% and we expect growth to reach 6.9% if the migration impact remains strong. The observed growth in February was mainly driven by the construction, financial, trade and transportation sectors. Meanwhile, manufacturing, real estate and professional activities sectors contracted.
Loan portfolio growth was 13.3% y/y in Feb-23
In Feb-23, the banking sector loan portfolio growth was 13.3% y/y (+0.8% m/m), excluding FX effect, unchanged y/y growth from previous month. In unadjusted terms, loan portfolio increased by 2.8% y/y (flat m/m) to GEL 44.5bn (US$ 16.9bn), after growing by 5.5% in January. By sector, corporate loans growth accelerated to 10.7% y/y (+9.9% y/y in January, exc. FX effect) and retail loans growth slowed to 15.7% y/y (+16.4% y/y in January). The mortgages increased by 13.0% y/y in February (+13.2% y/y in January). In Feb-23, loan dollarization reduced to 44.4% (-6.54ppts y/y and -0.29ppts m/m) and NPLs stood at 1.8% (-0.14ppts y/y and flat m/m).
Bank deposits growth remained strong, up by 29.5% y/y (+0.6% m/m, exc. FX effect) to GEL 43.6bn (US$ 16.6bn) in Feb-23, after a 29.2% y/y growth in January. By currency, GEL deposits increased by 28.6% y/y (+29.3% y/y in previous month) and FX deposits (exc. FX effect) by 30.0% y/y (+29.1% in previous month). The deposit dollarization reduced further to 54.8% (-4.49ppts y/y and -0.12ppts m/m) in February.
Current account (CA) deficit reduced to a record low 4.1% of GDP in 2022
CA deficit reduced to a record low 4.1% of GDP in 2022, from a 10.4% in 2021, according to NBG. The improvement in the CA balance was due to the strong growth in the service balance (reflecting a strong recovery in tourism revenues, amounting to US$ 3.5bn in 2022, surpassing 2019 level by 7.7%), followed by transfers balance. The merchandize trade deficit, traditionally the major contributor to deficit creation, increased by 35.5% y/y to US$ 5.1bn, as exports increased by 35.8% y/y and imports were up 35.7% y/y. Notably, the positive balance in services and transfers was 1.1x higher than the trade deficit in 2022. In addition, the net FDI (+79.6% y/y to US$ 1.7bn, 6.7% of GDP) was 1.6x higher than CA deficit in 2022. We expect current account deficit to increase to 5.4% of GDP in 2023, as transfers expected to normalize from last year’s high base.
NBG keeps key rate unchanged at 11.0%
The NBG kept its key rate unchanged at 11.0% on 29 March 2023 meeting. NBG acknowledges that the reduction in annual inflation to 8.1% in February was largely due to external factors. However, regulator underlines potential price pressures from the labor market, as wage growth is outpacing labor productivity growth, which could lead to inflationary pressure. Despite this concern, the NBG’s current forecast suggests that headline inflation will continue to decline significantly and may fall below the 3.0% target in 2H23. However, the regulator plans to begin gradual monetary easing once the trend of domestic factors causing inflationary pressure shows a clear path of reduction. The next committee meeting is scheduled for 10 May 2023.
