Georgian GDP Growth Reaches 5% in June
This week, the National Statistics Office of Georgia (GeoStat) released their Rapid Estimates of Economic Growth report for June 2019. The preliminary figures show the country’s GDP growth reached 5% year-on-year. In the first six months of 2019, growth averaged 4.9% year-on-year, so the increase is small, but notable. The effects of Russia’s ban on direct flights to Georgia, which went into effect on July 8, are not likely to be seen until next month.
The main sectors driving the growth are manufacturing, real estate, renting and business activity, construction, trade, transportation, and hotels and restaurants. On the other hand, the financial intermediation sector saw a drop in growth.
The construction sector was up for the first time in several months. Analysis by CBW attributed the change to “the waning negative effect of the finalization of [British Petroleum’s South Caucasus Pipeline expansion] project and increased public infrastructure investments.”
Also noted in the Rapid Estimates report, Georgian exports are up 11.5% in the first six months of 2019, reaching $1.78 billion, complementing a 4.9% drop in imports to $4.2 billion.
In terms of private business growth, 3,893 new enterprises were registered in June, down 2% year-on-year.
The state budget saw a small surplus in June of $7.5 million, mainly attributable to an increase in tax revenues. The Value Added Tax (VAT) payers’ turnover used in rapid estimates of economic growth reached $2.3 million – a 14.5% jump year-on-year. Government spending in June, at $264.4 million, was just over the six-month average for 2019 of $261.5 million.
The whole country is carefully watching the economic and fiscal situation as the Lari continues to devaluate against the dollar – a potential crisis in a country where, despite laws in place to help mitigate the risk, many people have loans or other regular payments in US Dollars, but receive their salary in Georgian Lari.
On July 31, shortly after the Lari hit three for one US Dollar, Prime Minister Mamuka Bakhtadze commented on the rise, saying “any analysis shows that the fundamental factors are strong today, meaning the Lari’s depreciation is too high.” In May and June, explained Bakhtadze, Georgia’s tourism revenue hit historic highs, and, although the Russian flight ban is expected to hit the tourism sector hard, the Lari’s devaluation cannot be attributed solely to that issue. “Revenues from tourism have fallen, but I am sure that with the action plan presented, with the suggestions we have heard from the business sector, we will be able to overcome these problems,” said Bakhtadze. He called on the National Bank to control the devaluation rate and actively manage its rise.
On August 1, the National Bank of Georgia sold $32,800,000 in currency reserves on the Foreign Exchange Auction at an average weighted rate of 2.9. The sale was an attempt to stabilize the Lari’s devaluation and prevent subsequent inflation. The National Bank blamed the devaluation on external tourist shocks and negative expectations among the population.
At time of going to print, the official exchange rate published by the National Bank of Georgia was 2.89 to a dollar. GEORGIA TODAY reported late last week that businesses are already announcing a rise in prices on food and daily consumables.
By Samantha Guthrie
Image Source: National Bank of Georgia