Monthly Economic Review - September 2022

Growth: Economy expanded by 8.8% y/y in September and by 10.2% overall in 9M22. Considering strong ongoing data, we revised 2022 growth projection upwards to 10.2%, from our baseline projection of 9.2%. In 2023, we expect growth at 4.8%, considering lasting impact of migration, stronger tourism and recovery in investments. In September growth was driven by transport, IT services, construction, hospitality and industry sectors, while real estate operations contracted.

Inflation: Headline CPI rose to 11.5% y/y in September, up from August’s reading of 10.9%. Energy and food prices continued to be primary drivers, while the former decelerated. Continued reduction of global food prices expected to have a lagged impact on local prices and soften inflationary pressures, we believe. We expect end-2022 inflation at 9.2% and end-2023 inflation at 3.3%.

Monetary policy: The NBG kept its key rate unchanged at 11.0% in October meeting. The regulator expects some positive trends in international commodity markets and GEL’s appreciation to gradually transmitted to the local market and favorably affect the inflation dynamics. NBG also renewed projections, expects 2022 growth at 10.0% up from previous 9.0%, and sees room for monetary normalization once a clear trend of decreasing inflation is observed. We do not rule out first rate cut in 1Q23 considering expected moderation in inflation.

FX: The GEL strengthened 2.1% m/m vs dollar in October after gaining 2.4% in September; currency gained 10.1% year-to-date. Continued robust growth of external inflows was the key factor behind currency strength. Possible deceleration of these flows and NBG buying FX (purchased US$ 263.2mn in 9M22) to build reserves may put some pressure on the currency, but the GEL expected to remain below 3.0 vs dollar through end-2022.