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Georgia – Leader in Region in Terms of Economic Growth Pace

Georgia’s economy has recorded favorable growth indicators in the first quarter of 2017, Geostat, the national statistics service of Georgia, reports. In March 2017  the real GDP growth rate marked 5.3%, as compared to the same period of 2016, while the averaged real growth in the first quarter marked 5%.

The mentioned indicators were positively appraised several times by both government officials and analysts and representatives of international finance institutions. Moreover, it should be also stressed that, according to the 2017 budget, the 2017 economic growth forecast makes up 4% and this growth was achieved at the beginning of 2017, when economic activity traditionally slows down. Consequently, there are justified expectations that economic growth pace will be positive in the next months too. Despite forecasts of Georgian Government, International Monetary Fund (IMF) decreased Georgia’s forecast indicator to 3.8%.

The monetary policy report by National Bank of Georgia (NBG) also analyzes economic growth forecasts and the current developments in the Region. According to the report, Georgia’s economic growth rate is one of the best ones among neighboring countries.

At the beginning of 2017 instable situation was maintained in the Region, however, certain recovery signs have also emerged. Region’s macroeconomic tendencies still have serious impact on Georgian economy through commercial, money transfer and tourism channels. According to IMF forecast, global economic growth in 2017 will mark 3.5% and this is an improved indicator. It should be also noted that the mentioned expectations are preconditioned by comparatively  quick economic recovery forecasts in the developed countries.

In February 2017 Ukraine’s economic recovery process declined because of complicated developments in eastern part of the country. Industrial production has shrunk by about annual 5%. However, at the beginning of April the IMF approved a new tranche for Ukraine. This fact has made positive affect on consumer and business moods and partly neutralized economic activity contraction. In whole, taking into account these circumstances, IMF has slightly worsened the 2017 GDP growth forecast to annual 2%.

According to recent indicators, Russian economy continues recovery process. In March, industry sector considerably enlarged and international trade indicators were also improved. Oil price stabilization and implemented prudential policy also promote the process. Along with alleviation of Ruble depreciation burden, over the past months annual inflation indicator decreased and marked 4.3% in March. According to IMF forecast, Russia’s GDP will rise by 1.4% in 2017, up 0.3% as compared to the previous report.

Along with Russian economy recovery, in Armenia, after a weak upturn in 2016, at the beginning of 2017 economic activity considerably intensified. Growth in money transfers and revenues from exports have made positive effect on consumer moods. In addition, the new government administration announced readiness for carrying out liberal reforms  for promoting foreign investments. However, as compared to assessments made in October 2016, IMF has lowered the 2017 real GDP growth forecast to 2.9%.

Like other countries of the Region, at the beginning of 2017 recovery signs appeared in Azerbaijani economy too. Namely, along with increased investments, non-oil industry indicators were also improved. Moreover, amid stabilization of global oil prices, slowdown  in oil industry has also decelerated. Despite this, amid weaker-than-expected growth in 2016, IMF lowered real GDP growth  forecasts  to 1%.

After the 2016 weak second half, as a result of counter-cycle measures of Turkish government, at the beginning of 2017, consumer demand and industrial production have considerably increased, however, uncertainty from political developments has made negative impact on the market. Amid heavy burden from LIRA depreciation, consumer prices inflation hit record figures over the past years in March (11.3%).

According to IMF assessment, the 2017 real GDP growth forecast made up 2.5% and this is worsened indicator as compared to evaluations made in October 2017.  As to international economic growth and forecasts for Georgia’s main trade partner countries, as noted above, according the IMF forecasts, global economy will grow by 3.5%. Naturally, Georgia is part of the global economy and, consequently, global economic developments have huge impact on developments in Georgia. Below we introduce presumable forecasts for the countries that considerably affect Georgia’s economic situation.

In terms of economic activity, quick recovery paces are recorded in the USA. Amid radically improved consumer mood and reduced unemployment, consumer demand is a key factor for GDP growth. Announced fiscal stimulus expectations also create positive attitudes.

According to IMF report, the US economy will grow by 2.3% in 2017. Eurozone economy recovery process is gaining momentum stage by stage, as a result of improved consumer and business moods, growth in demand and positive tendencies on labor market.

Despite this, consumer price inflation remains under 2% target indicator. In March, annual inflation made up 1.5%. According to IMF forecast, in 2017 Eurozone economy will rise by 1.7%.

At the beginning of 2017, in the trade partner countries with reduced inflation expectations and reduced domestic currency depreciation, central banks smoothed monetary policy and created preconditions for improving economic activity.  At the same time, in the developed countries, where output growth comes behind potential growth and consumer prices increased at low rates, expectations for  monetary policy alleviation will be maintained again.

As to the USA, amid expected high inflation, Federal Reserve System raised the policy rate in March. According to the minutes of the committee meetings, the rate is expected tot rise twice again throughout 2017.