Galt & Taggart Publishes 2017-18 Georgian Macroeconomic Overview

On February 22, Galt & Taggart, the leading investment banking and investment management services company in Georgia, published its Georgian Macroeconomic Overview for 2017-18.

According to the report, Georgia’s economic performance was strong, with significant milestones achieved in 2017. Two of these milestones included: becoming the ninth easiest place to do business globally, according to the latest World Bank Doing Business Report; and being given a sovereign credit rating upgrade by Moody's. Furthermore, economy grew by an estimated 4.8% in 2017, trust in which was shown through a record high reinvestment by foreign companies.

The Executive Summary of the report, 'Georgian Economy - Empowering Private Sector to Drive Growth', revealed further achievements:

"Increased external demand for goods and services originating in Georgia made net exports the main driver of growth in 2017 for the first time since 2013. Tourism posted a stellar performance, with inflows in the sector totaling $2.8bn US. The Government boosted capital expenditure, while the fiscal deficit reduced to 3.9% in 2017 from 4.1% in 2016. Importantly, reinvestment by foreign companies almost doubled and reached $600m US in 9M17, indicating investors’ trust in Georgia’s growth model and the success of the profit tax reform introduced in 2017.

Inflation retreated to 4.3% in January 2018, and we expect it to decrease to close to the 3.0% target in 2018, after the temporary price pressures seen in 2017. In line with lower inflation, we expect the National Bank of Georgia (NBG) to cut the policy rate by 50bps from the current 7.25%. We also expect the GEL to strengthen to 2.40 vs the US$, which should also lessen price pressures from imported inflation. We think that the NBG will intervene and build reserves to preserve competitiveness in case the GEL significantly appreciates vs the US$.

The government’s commitment to containing current spending growth and increasing the fiscal space for capital spending has been demonstrated by recently approved remuneration law. Moreover, the Government has reduced the processing time and administrative procedures for refunding VAT claims. This together with profit tax reform should strengthen the financial position of corporates, increase investment and support private sector-driven growth.

We maintain our GDP growth forecast at 5.4% for 2018. This forecast is based on 1) better-than-expected growth momentum among Georgia’s main trading partners; 2) commencement of large investment projects (Anaklia, Nenskra); 3) acceleration of the positive impact from growth-enhancing reforms by the government; and 4) overall improvement in consumer and business confidence locally. In addition, we see the expected monetary easing as positive for the growth outlook."

Máté Földi