Real GDP growth was 10.3% y/y in August 2021
Georgia’s economy grew by 10.3% y/y in August 2021, after growing by 9.9% y/y in previous month, based on Geostat’s rapid estimates. Notably, real GDP of August 2021 was also up by 4.5% compared to August 2019 level. In August, economic activity was up in all sectors except construction and mining. Notably, the continued growth in remittances/tourism, along with an acceleration in government capital spending and corporate bank lending fuelled the growth. Overall, in 8M21, real GDP growth was 12.0% y/y (+5.5% compared to 8M19).
Corporate bank lending growth accelerated in August 2021
In August 2021, the banking sector loan portfolio growth accelerated to 15.3% y/y (+1.5% m/m), excluding FX effect, after a 13.5% y/y growth in previous month. In unadjusted terms, loan portfolio was up 16.2% y/y (+1.2% m/m), amounting to GEL 40.1bn (US$ 12.9bn). By sector, in August, corporate loan growth accelerated to 15.6% y/y (exc. FX effect), from a 12.0% y/y growth in previous month, while retail loan growth remained almost unchanged at 15.0% y/y. In August 2021, loan dollarization reduced further to 51.7% (-4.44ppts y/y and -0.26ppts m/m) and NPLs stood at 2.2% (+0.05ppts y/y and -0.01ppts m/m). Bank deposits grew by 13.4% y/y (+0.2% m/m, exc. FX effect) to GEL 35.4bn (US$ 11.4bn) in August 2021, with GEL deposits up 12.8% y/y and FX deposits up 13.8% y/y (exc. FX effect). The deposit dollarization stood at 60.1% (+0.59ppts y/y and +0.01ppts m/m).
Current account deficit improved markedly in 2Q21
Current account deficit reduced by 8.4% y/y to 8.0% of GDP in 2Q21, down from 11.8% of GDP in 2Q20, according to NBG. The improvement in the CA balance was supported by surge in transfers, up 58.7% y/y to US$ 537.9mn (11.2% of GDP), followed by a recovery in service balance (reflecting the rebound in tourism revenues), up 26.4x y/y to US$ 143.9mn. Meanwhile, merchandize trade deficit, traditionally the major contributor to deficit creation, widened by 23.3% y/y to US$ 755.6mn, as exports increased by 49.0% y/y and imports by 42.9% y/y. Notably, other investments at US$ 318.2mn (6.7% of GDP) were key funding source of CA deficit, while net FDI stood at US$ 148.0mn (3.1% of GDP) in 2Q21. Overall, CA deficit came in at 9.2% of GDP in 1H21, down from 11.3% of GDP in 1H20.
Government projects a 4.4% deficit in the 2022 draft budget
The government has submitted a first draft of 2022 budget to the Parliament, incorporating also updated fiscal parameters for 2021. The 2022 budget framework is based on 6.0% real GDP growth and 4.5% deflator assumption (notably, 2021 growth forecast was also revised upwards to 9.5% from 7.7%). Public debt is projected at 52.1% of GDP for 2022, almost unchanged from 2021 debt figure – 52.2% of GDP. Notably, tax revenues are set to increase by 17.6% y/y to 23.5% of GDP, reflecting also termination of COVID-related tax relief. Current expenditures are set to reduce to 22.0% of GDP (26.2% in 2020 and 24.7% in 2021), as COVID-related healthcare expenditure are planned to reduce. Meanwhile, capital expenditures remains high at 8.5% of GDP in 2022. Therefore, fiscal deficit is projected at 4.4% of GDP in 2022, down from 6.7% in 2021, which returns to pre-pandemic level from 2023.
NBG sold US$ 60.0mn
On 30 September 2021, NBG intervened in the FX market and sold US$ 60.0mn to limit GEL volatility. This was 9th FX intervention in 2021. Previous FX auctions took place during January-August 2021 with the total sale of US$ 272.9mn.
