Growth: Georgia’s economy expanded by 5.8% in Aug-23, in line with our expectations. Overall, in 8M23, growth reached 7.0% and we forecast a growth rate of 6.8% for the full year 2023.
Growth in August was primarily driven by robust activities in the financial, construction, manufacturing and trade sectors. In contrast, the real estate, transportation & storage and ICT sectors contracted during the same period.
Inflation: Annual CPI inflation increased to 0.9% in Aug-23, up from the previous month’s 0.3%. Meanwhile, core inflation saw a significant decrease, dropping to 2.5% (-0.6ppts m/m). This reduction in inflation can be attributed to reduced imported inflation and a slowdown in domestic inflationary pressures. However, the recent uptick in oil prices on international markets is expected to limit this disinflationary trend.
As a result, we have slightly revised our average annual inflation forecast upwards by 0.3ppts to 2.7% for the full-2023 year and by 0.4ppts to 3.5% for 2024.
Monetary policy: On September 13, 2023, the NBG reduced its key rate by 25bps to 10.0%, marking the 3rd rate cut this year. We anticipate that the NBG will continue to execute its planned strategy of gradually easing monetary policy throughout 2023, with an expected additional 50bps rate cut by the year-end. In 2024, we project the key rate to reach 8.5%, which is a revision upwards from our previous expectation of 8.0%. This adjustment is based on our updated inflation forecast, which has seen an upward revision.
FX: The GEL depreciated by 1.9% m/m in September vs dollar, yet it has slightly appreciated YTD. Given the robust fundamentals (FX inflows, strong growth, and healthy fiscal parameters) along with high FX liquidity in the market, we anticipate that the GEL will sustain its stability at 1$/2.7 throughout 2023. Notably, the NBG is a net buyer of US$ 1.4bn YTD by our estimates.
