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Georgian Economy - Steaming Ahead

20 Apr, 2017

Georgia’s flexible exchange rate and economic diversification once again braced the economy against external headwinds in 2016. Growth remained stable at 2.7% while price pressures have been contained with year-end inflation at 1.8% y/y. With the better external environment, economic activity rebounded strongly in 2017 with GDP growth of 4.8% y/y in 2M17. The GEL’s appreciation since mid-February and Georgian citizens’ recently granted visa-free travel to the EU are boosting consumer and business confidence. The government’s four-pillar reform program and related increase in infrastructure spending, alongside new tax exemptions for the corporate sector, are expected to boost investment growth. The better external environment due to firming world commodity prices and the moderate recovery in partner countries’ economies are expected to have a positive impact on goods exports and remittances throughout 2017. Moreover, significant growth in tourism revenues is anticipated with Georgia being a cheap and popular tourist destination, as well as solid FDI of US$ 1.7bn. These factors are boosting the country’s growth outlook, with the economy expected to grow by 4.3% in 2017.

Most resilient economy in the region in 2016. The Georgian economy remained resilient despite the external headwinds hampering performance since end-2014. Growth remained stable at 2.7% y/y in 2016, which we view as fairly solid compared to the country’s major trading partners. The construction sector grew by 8.1% in 2016 as a whole despite the slowdown in 2H16, attributed to the high base in 2015. Importantly, the two largest sectors of the economy posted growth – manufacturing (+4.8% y/y) and trade (+1.8% y/y) – reflecting the recovery in both external and domestic demand, supported by firming world commodity prices and increased remittances in 2H16. Robust tourist arrivals drove the strong 9.9% y/y growth in the hospitality sector. Financial intermediation rose 9.3% y/y. Real estate operations was the other fastest-growing sector at 6.7% y/y despite uncertainties related to GEL depreciation. Transport (-0.7% y/y) and communications (-0.2%) were the only sectors to post a modest contraction in 2016. Growth in agriculture was flat despite various government-supported programs in the sector. 

Investments drove growth in 2016; recovering private demand also supported growth in 2H16. Investments increased by 7.9% y/y in real terms in 2016 as FDI related to strategic projects and residential construction increased private investments by 10.5% y/y. Government investments fell 4.2% y/y in real terms, as infrastructure spending slowed significantly in 4Q16. Private consumption recovered in 2H16, bringing the 2016 growth figure to +1.2% y/y. This was supported by growth in remittances since June 2016 and an 18.5% y/y expansion (excluding FX effect) in the retail credit supply. Strong growth in services exports largely compensated drop in goods exports. At the same time, imports recovered in the 4Q. As a result, net exports contribution to GDP was negative 0.9ppts compared to negative 3.7ppts in 2015.

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Georgia's Tourism Sector - Tourism Market Watch | March 2017

5 Apr, 2017

The number of international arrivals was up 13.1% y/y to 0.51mn in March 2017. Out of the top five source markets, there was strong growth from Armenia (+11.2% y/y), Azerbaijan (+11.1% y/y), Russia (+16.3% y/y), and Ukraine (+16.5% y/y). The number of arrivals from Turkey was down (-17.3% y/y), largely due to the maintenance works at the Sarpi customs clearance, which have led to long delays in crossing the border. Arrivals from the EU were up 9.5% y/y to over 15,000 visitors

The number of international arrivals was up 11.4% y/y to 1.27mn visitors in 1Q17. The number of visitors increased from all major countries except for Turkey (-14.0% y/y). Armenia (+15.2% y/y) and Russia (+28.1% y/y) were the largest contributors to overall growth, with Ukraine also posting double-digit growth (+17.3% y/y). The number of visitors from Azerbaijan posted a modest increase of 4.2% y/y from the high base of 1Q16 (+24.6% y/y).

While the top four source markets accounted for 83.2% of international arrivals in 1Q17, secondary source markets also posted robust performances. The number of Indian visitors was up 2.5x to almost 12,000, while the number of Israeli visitors increased 80.4% y/y to over 8,000 visitors. Arrivals from the EU were up 16.2% y/y in 1Q17 to almost 39,000 visitors, with Germany (+27.5% y/y), Poland (+33.8% y/y), and United Kingdom (+16.3% y/y) driving the growth.

The tourist category continues to drive arrival growth in March 2017. The number of overnight visitors (‘tourist’ category) was up 28.6% y/y and accounted for 43.0% of total international arrivals. Same-day arrivals were down 0.6% y/y, while the number of transit visitors was up 14.3% y/y in March 2017. The number of tourist arrivals is up 25.7% y/y to 0.51mn in 1Q17, compared to 0.41mn in 1Q16. The number of same-day visitors is down 1.6% y/y, while the number of transit visitors is up 17.5% y/y in 1Q17.

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Regional Fixed Income Market Watch | March 2017

4 Apr, 2017


  • Inflation in the USA came in at 2.7% y/y in February 2017, up from 2.5% y/y in the previous month and well above the FED target rate. Following a 2.0% y/y increase in February 2017, inflation in the Euro zone retreated to 1.5% y/y in March 2017.
  • Growth in Turkey and Russia came in at 3.5% y/y and 0.3% y/y, respectively, in 4Q16.
  • According to short-term indicators, relatively strong growth continued in Armenia (+6.0% y/y), Georgia (+4.4% y/y), and Kazakhstan (+3.7% y/y) in February 2017.
  • In Azerbaijan growth retreated to 0.4% y/y, while in Belarus GDP contracted 1.0% y/y in 2M17.
  • In Ukraine growth likely weakened as industrial output turned negative (-4.6% y/y), agricultural output remained in negative territory, and construction production index increased marginally.
  • Compared to the previous month, inflation in February 2017 increased in Ukraine (+14.2% y/y), Azerbaijan (+13.0% y/y), Turkey (+10.1% y/y), and Georgia (+5.5% y/y).
  • Compared to the previous month, inflation in February 2017 was broadly flat in Kazakhstan (+7.8% y/y), while retreating in Russia (+4.6% y/y) and Belarus (+7.0% y/y). Armenia remained in deflationary territory, with prices down 0.2% y/y in February 2017.


Please see the full report for detailed coverage of the fixed income markets of Georgia, Armenia, Azerbaijan, Belarus, Kazakhstan, and Ukraine.

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Georgia's Energy Sector - Electricity Market Watch | February 2017

27 Mar, 2017

The Georgian government has decided to sell the newly commissioned wind power plant to private investors. The wind farm is currently owned by “Qartli Wind Farm” Ltd, whose shareholders are state-owned companies Georgian Energy Development Fund (GEDF) and Georgian Oil and Gas Corporation (GOGC).  Shares of the Qartli wind farm will be sold via public auction, after an evaluation by an independent audit company.  The terms of the auction will be announced after the final audit report is issued. The WPP has supplied on average 0.5% of monthly electricity demand since it commenced operations in November 2016.

EU4ENERGY regional office was opened in Tbilisi on March 10, 2017. EU4Energy is a four-year European Union technical assistance project launched in June 2016. The overall objective of the 3rd component of EU4ENERGY, with a budget of EUR 6.8mn, is to improve the beneficiary countries' legislative and regulatory environment in the energy sector, in line with their EU obligations and best practices.

Domestic consumption increased 13.0% y/y in February 2017, with the Abkhazian region and eligible consumers driving the growth. Consumption of distribution companies increased 9.1% y/y: consumption was up 8.3% y/y by Telasi, 4.9% y/y by Kakheti Energy Distribution, and 10.0% y/y by Energo- Pro. Consumption of the Abkhazian region was up 19.9% y/y and accounted for 23.1% of domestic consumption. Consumption by eligible consumers was up significantly (+24.8% y/y).

Growth in domestic consumption was met mostly through imported electricity. Total electricity supply from domestic sources was flat (-0.5% y/y), while imports more than doubled (+106.2% y/y) and TPP increased by 62.2% y/y in February 2017. Only one third (34.2%) of domestic consumption needs was met by hydro generation. The main reasons for the change in the electricity supply mix were bad hydrological conditions affecting most HPPs and Enguri HPP’s 10-day closure. The HPP halted operations to allow experts interested in the Enguri tunnel rehabilitation consultancy tender to walk through the tunnel and evaluate the scope of work. Guaranteed capacity fee was down 23.1% y/y to USc 0.66/kWh, with guaranteed capacity provided by each of the five sources for most of the month. Almost half of the imported electricity came from Azerbaijan (47.3%), with the rest imported from Russia (42.6%) and Armenia (10.2%).

Wholesale market prices in Georgia decreased 7.0% y/y to USc 5.1/kWh, 5.7% above the Turkish market clearing price in February 2017. The average price of imported electricity in Georgia decreased 22.6% y/y, notably from the very low base in February 2016 (-31.7% y/y). The main reason for such a meaningful decrease was the subsidized price of imported electricity from Russia (via the Salkhino line), which was mainly directed to the Abkhazian region to meet its continuously increasing demand.

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