TOPIC OF THE WEEK: Georgian economy firing on all cylinders

CAUCASUS / CENTRAL ASIA - Report 06 Sep 2024 by Ivan Tchakarov

The Georgian economy has posted a very impressive 9.7 percent GDP growth over the first seven months of the year (YoY), rendering it the fastest-growing economy in the CCA space. Fast-declining inflation has helped generate high real wage growth and, consequently, robust consumption spending. Lower policy rates have also created extra demand for credit, which has provided an additional prop to consumer spending. This has helped deliver increasingly larger growth contributions from consumption, which has been the key driving force behind the vibrant economic momentum.

With the Jan to Jul GDP growing at 9.7%, it is clear that the momentum is powerful enough for the economy to do well better than our current 6.0% forecast. We now see full-year GDP growth at 8.0%, which implies an average 5.6% growth over Aug to Dec. In our view, this pace will be easily achieved given the underlying trajectory in the economy.

Critically, the all-important tourist sector does not seem to have suffered from the adoption of the controversial Transparency Law. Passenger traffic at all Georgian airports has increased by a hefty 30% YoY over the first half of the year, while income from foreign travel has risen by almost 10% YoY during the quarter (Q2) of the adoption of the law.

The accelerating economic cycle is a very good news for Georgian Dream in the runup to the Oct Parliamentary Elections. When the new Kobakhidze government started its term in Feb, we posited that the economic cycle will serve Georgian Dream well as the Oct elections draw near. This thesis remains valid today. The adoption of the Transparency Law, however, will modify our second conjecture that Georgian Dream would be very likely to also win constitutional majority in the new Parliament. We now think that the price for passing that Law will be the inability to bag that coveted constitutional majority. As a result, we still see a comfortable win for Georgian Dream, but not a constitutional majority.

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