Monthly Economic Review - Reduced CA Deficit

Growth: Georgia’s economy expanded by 12.0% in Aug-24, after a 13.0% y/y growth in previous month. Cumulatively, real GDP growth came in at 10.0% y/y in 8M24. In August, significant growth was observed in the professional and scientific activities, ICT, construction, financial and insurance, real estate, and trade sectors, while the energy sector contracted. Due to the robust economic performance in 8M24, we updated our full-year real GDP growth projection to 9.0% from the earlier forecast of 8.0%.

Inflation:  In Aug-24, annual inflation eased further to 1.0%, down from 1.8% in July. Primarily, this slowdown was driven by a moderation in domestic inflation, which eased to 1.1% y/y in August from 1.9% y/y in July, alongside a reduction in mixed goods inflation by -1.1% y/y. Similarly, imported inflation decelerated, reaching 3.0% y/y in August, down from 3.7% y/y in the previous month. Notably, core inflation, excluding volatile food, energy and tobacco prices, reduced to 0.9% y/y in Aug-24 from 1.1% y/y recorded in previous month. We forecast average annual inflation at 1.8% for 2024.

Monetary policy: On September 11, 2024, the NBG’s Monetary Policy Committee kept its key rate unchanged at 8.0%, reflecting global uncertainty on food and energy markets, along with continued disruptions in supply chains and international shipping.    Furthermore, strong economic growth in Georgia is adding to inflationary pressures. We anticipate that the NBG will maintain this rate throughout 2024.

FX: Similar to previous month, the GEL strengthened in August, appreciating by 1.1% m/m. Notably, the NBG purchased US$ 41.0mn in August, bringing total net purchases to US$ 109.8mn for 8M24 (purchased US$ 329.5mn and sold US$ 219.8mn). Consequently, gross international reserves reached US$ 4.8bn as of Aug-24. We anticipate an average GEL rate of 2.74/1$ and 2.99/1€ for 2024.