Three Possible Scnearios of the Covid-19 Impact on Georgian Economy

What will be the impact of COVID-19 on the Georgian economy - PMCG has discussed the possible scenarios in its research.

According to a document released by the organization, the measures taken to contain the Covid-19 pandemic have had a significant impact on the global economy. In particular, the International Monetary Fund (IMF) forecasts that the world economy will shrink by 3% in 2020, which is higher than the 2009 global financial crisis (-1.73%).

According to PMCG, the IMF forecasts a 4% reduction in real GDP in Georgia in 2020, which is the most negative indicator in the region. The reason for this is mainly the high share of tourism and remittances in the country's economy.

"In 2019, foreign exchange inflows from only these two sectors accounted for 28.2% of Georgia's GDP. In March 2020, compared to March 2019, the number of tourists decreased by 56.1%, the amount of remittances by 9%, and in the coming months this further reductions in indicators are expected.

As a result of the restrictions, consumer demand is also declining, further exacerbated by the expected rise in unemployment and declining wages and remittances, ”the study said.

According to the same data, the level of uncertainty related to the pandemic reaches a record high, which makes it almost impossible to predict economic growth, as uncertainty is due to factors such as the expected dynamics and scale of the spread of the virus, vaccine and drug production, changes in production and consumer behavior change, financial situation, etc.'',-reads the statement. 

According to various sources, PMCG has compiled three possible scenarios for GDP growth in Georgia for different duration of virus prevention measures:

Scenario I:

Optimistic economic activity is completely suspended for 2.5 months, and the next three months - partially. Accordingly, economic activity will be partially renewed from the beginning of June 2020, and fully - from the beginning of September 2020.

Scenario II:

Less pessimistic economic activity is completely suspended for 4 months, and for the next three months - partially. According to this scenario, economic activity will be partially resumed from mid-July 2020, and fully - from mid-October 2020.

Scenario III:

Very pessimistic economic activity is completely suspended for 6 months, and for the next three months - partially. According to this scenario, economic activity will be partially resumed from mid-September 2020, and fully - from mid-December 2020. The scenario also provides for possible recurrent waves of the virus.

According to the scenarios discussed, as a result of the assessment of the possible impact on the economic sectors of Georgia, it is possible to determine the change in the real economic growth of Georgia. In the case of the optimistic scenario, Georgia's real economy will shrink significantly in 2020 (-4.3%), which is higher than in 2009 (-3.7%). The less pessimistic scenario reduces the economy by 8%, while the more pessimistic scenario by 12.9%, "the study said.