Growth: Georgia’s economy grew by 5.1% in Sep-23, in line with our expectations, after growing by 5.8% in August. Overall, in 9M23, growth reached 6.8% and we maintain our growth forecast at 6.8% for the full year 2023 and at 5.0% for 2024.
In September, real growth was recorded in the financial, construction, trade and hotels & restaurants sectors. In contrast, the manufacturing, transportation & storage and real estate sectors contracted during the same period.
Inflation: Annual CPI inflation retreated to 0.7% in Sep-23 from the previous month’s 0.9%, thanks to continued slowdown in domestic inflation (to 5.3% y/y from 6.1% y/y in Aug-23) and decline in inflation for imported goods (-4.1% y/y) and mixed goods (-2.9% y/y). Notably, core inflation remained at 2.5% in September, similar to August. We forecast average annual inflation at 2.7% for 2023 and 3.5% for 2024.
Monetary policy: On October 25, 2023, the NBG decided to maintain its key rate at 10.0%. Despite the low inflation, the NBG is concerned on the current geopolitical situation, particularly the Middle East conflict, which adds uncertainty to the inflation outlook. Consequently, the regulator intends to proceed with a cautious approach to monetary normalization. Given these concerns, we revised our forecast and expect the key rate at 9.75% in Dec-23 and at 8.75% by end-2024 (25bps higher than our earlier estimate).
FX: The GEL depreciated by 1.0% m/m in October vs dollar, though it has remained flat YTD. Despite the challenging geopolitical context, Georgia’s fundamentals continue to show strength, with robust FX inflows, solid economic growth and sound fiscal parameters. Consequently, we anticipate the GEL to hover around 1$/2.7 throughout 2023 and into 2024. Notably, the NBG is a net buyer of US$ 1.3bn YTD.
