Monthly Economic Review - Historically low unemployment

Growth:  Georgia's economy gained momentum, with real GDP up by 13.0% in Jul-24, after a 7.5% growth in previous month. Cumulatively, real GDP growth came in at 9.7% in 7M24. In July, real growth was recorded in the construction, manufacturing, ICT, professional & scientific activities and trade sectors. Meanwhile, the energy sector contracted in the same period. Given the stronger-than-expected growth in 7M24, we are raising our real GDP growth forecast to 8.0% from 7.0% for the full-2024 year.

Inflation:  In Jul-24, annual inflation retreated to 1.8%, down from the 2.2% print in previous month. This slowdown was largely driven by a deceleration in domestic inflation, which slowed to 1.9% in Jul-24 from 2.8% y/y in Jun-24. At the same time, imported inflation rose to 3.7% y/y in July, up from 3.3% y/y in June. Notably, core inflation, excluding volatile food, energy and tobacco prices, further reduced to 1.1% y/y in Jul-24 from 1.4% y/y recorded in previous month. 
Due to lower-than-expected inflation in 7M24, thanks to a stable GEL, we now forecast average annual inflation at 2.0% for 2024.

Monetary policy:  On July 30, 2024, the NBG’s Monetary Policy Committee kept its key rate unchanged at 8.0%, citing increased inflationary risks from volatile international oil and food prices and higher shipping costs from China. We anticipate that the NBG will maintain this rate throughout 2024.

FX: Due to continued strong FX inflows, the GEL further strengthened in August. Notably, the NBG purchased US$ 1.9mn in July and it is likely that these purchases continued into August. Overall, the NBG was a net buyer of US$ 68.8mn in 7M24 (purchased US$ 288.5mn and sold US$ 219.8mn), with gross international reserves reaching US$ 4.7bn as of Jul-24. We now anticipate an average GEL rate of 2.74/1$ and 2.99/1€ for 2024, slightly improving from our previous forecasts of 2.77/1$ and 3.0/1€.