Asian Development Bank increases 2023 Georgia GDP forecast to 6%

TBILISI. Sept 20 (Interfax) - The Asian Development Bank raised its 2023 economic growth forecast for Georgia to 6% from 4.5%, the bank's Asian Development Outlook 2023 review says.

Estimated GDP growth in 2024 remains at 5%.

Inflation forecasts for both 2023 and 2024 are lower. This year, the expectation is 3%, down from 6%, and next year, the estimate is 3.5%, down from 4%.

Economic growth this year is being supported by development in the construction and service sectors, stable income from tourism, trade and the continuing influx of financial resources from Russian migrants, which are contributing to the strengthening of the Georgian lari, the review says.

In H1 2023, GDP growth slowed to 7.6% from 10.6% in January-June 2022. Despite 15.1% growth in construction and 10.2% in the services sector, industrial production fell 0.7% and agriculture was down 2.3%.

Growth in the services sector in H1 2023 was driven by 14% growth in the wholesale and retail trade sector, 15.7% growth in the accommodation and food services sector, a 44.2% increase in the information and communications sector and a 17.2% rise in the arts, entertainment and leisure sectors, which largely reflects the recovery in tourism.

Foreign direct investment in Georgia remained strong at nearly $500 million in Q1 2023, and the unemployment rate fell. "Encouraging figures such as these prompt us to raise the growth forecast for 2023, but not for 2024, in light of (...) the possible consequences of a slowdown in global development," the review says.

Inflation in the country fell below the target level (3%), helped by a relatively stable lari exchange rate and prudent macroeconomic policies. As year-on-year inflation continues to decline (0.3% in July 2023), average annual inflation slowed from double digits throughout 2022 to 4% this July, despite a 7.3% rise in food prices.

The current account deficit of the balance of payments narrowed sharply from the equivalent of 13.3% of GDP in Q1 2022 to 3.2% in Q1 2023. "Remittance inflows, which reached a record high in 2022, increased 27.5% year-on-year in the first 7 months of 2023 to $2.7 billion, almost half of which came from the Russian Federation," the review says.

In the seven-month reporting period, exports of goods increased 15.7% due to significant re-exports of vehicles, and imports increased 19% due to high domestic demand and the relatively stable exchange rate of the lari against the US dollar. In H1 2023, tourism revenues grew 57.9% year-on-year to $1.8 billion. "Risks to current account deterioration include, in addition to domestic political polarization and geopolitical risks, a possible weakening in external demand, rising global interest rates , which could limit capital inflows, and a widening gap between investment and savings," ADB notes.

The Georgian economy in 2022 grew 10.1% with inflation of 11.9%, the ADB said.