Monthly Economic Review - July 2022
Growth: Economic growth remained robust, strengthening by 9.7% y/y in July, after growing by 7.2% y/y in previous month. Cumulatively, in 7M22, the real growth was 10.3% y/y. We maintain the 2022 baseline growth forecast at 9.2% and in optimistic scenario, we expect 2022 growth at 10.6% (if external inflows remain strong despite global slowdown in 2H). Growth in July was broad based, driven by transport and communications, construction, mining and trade, while it reduced in manufacturing. On expenditure side, strong remittances and tourism receipts continued to support consumption.
Inflation: Headline CPI retreated for the 2nd consecutive month to 11.5% y/y in July, moderating from June’s reading of 12.8%. Energy and food prices continued to be primary drivers, and the increased house rents limited deceleration, contributing 0.8ppts to the headline inflation. Going forward, inflation expected to moderate considering last year’s high base and seasonal easing in food prices. Despite downward trend, inflationary pressures expected to last longer (end-2022F inflation at 9.2%).
Monetary policy: The NBG kept its key rate unchanged at 11.0% in August meeting, but reduced consumer loan tenor for a year to limit credit growth. We expect monetary easing from 2Q23 in line with inflation slowdown. NBG also updated forecasts and expects growth at 9.0% in 2022, up from 4.5% previous forecast.
FX: The GEL rose to 3-year high vs dollar on August 12, but weakened after, losing 7.5% at end-August (but still 6.0% stronger year-to-date). Amid robust external inflows, recent depreciation is likely related to expectations of GEL’s seasonal weakness in 4Q. We expect GEL to remain close to 3.0 vs dollar through end-2022.