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G&T Team
ResearchResearch Reports Monthly Economic Review – Improved Macro Indicators

Monthly Economic Review – Improved Macro Indicators

Growth: Real GDP growth accelerated to 7.3% in Mar-23, from 5.8% growth in previous month. Overall, in 1Q23, growth came in at 7.2%. In March, construction, financial, trade, and transportation and storage sectors drove the growth. Meanwhile, manufacturing, energy and real estate sectors contracted.
Considering better-than-expected growth in 1Q, we revised 2023 annual growth forecast upwards to 5.8% from 4.8%.

Inflation: Headline CPI retreated to 5.3% y/y in March, marking the 6th consecutive monthly decline. Core inflation also reduced to 5.0% from February’s reading of 6.6%. We expect disinflation to continue, supported by delayed GEL appreciation pass-through and the high base effect of last year. Considering rapid reduction in inflation in March, we revised our average annual inflation forecast downwards to 4.7% from 5.2% in 2023 and expect inflation close to the 3.0% target at end-23. 

Monetary policy:  The NBG kept its key rate unchanged at 11.0% at Mar-23 meeting. NBG expects inflation to decline below the 3.0% target in 2H23, due to high base effect. Considering sharp deceleration in inflation, we do not rule out first rate cut in May-23. Overall in 2023 we see room for 100-150bps rate cut. 

FX: The GEL strengthened by 7.5% vs dollar year-to-date, after gaining 12.5% in 2022.  The continued robust growth of external inflows has been the key factor behind the currency's strength. Notably, NBG purchased US$ 460.5mn in 1Q23 to build reserves. We revised average GEL rate to 2.55 vs dollar from 2.65 for 2023.