Considering the better than expected growth in 1H21, Galt and Taggart revised 2021 growth upwards to 8.6%, from our previous forecast of 7%. “The recovery has gained impressive traction since April 2021” – says the recent report pointing at figures. The real GDP growth came in at 29.8% y/y in 2Q21 after shrinking 4.5% y/y in 1Q21.
As a result, the economy expanded by 12.7% y/y in 1H21, surpassing also pre-pandemic level (1H19) by 5.7%. The recovery was supported by removing mobility restrictions, robust growth in remittances and exports, and a faster than expected rebound in tourism, along with fiscal stimulus.
Growth was broad based with hospitality sector boosted by resumed tourism and lifting of restrictions, manufacturing benefited from global commodity price growth, while trade was supported by recovery in regional economies (notably growth in car re-exports and copper) as well as strong local demand. Construction was boosted by public infrastructure spending along with strong private sector activity on the back of improved sentiments. External inflows posted strong growth in 1H21 (remittances up 40.8% y/y, exports up 25.2% y/y with domestically produced goods driving the growth, and tourism revenues recovered to c. 21% of pre-pandemic levels), but imports (+18.9% y/y) also increased amid strong demand. “Notably, remittances and goods exports surpassed pre-pandemic levels and strong external inflows expected to contribute to a narrowing of the current account deficit to 9.5% of GDP in 2021 from 12.5% of GDP in 2020” – says Galt and Taggart.
However, in this updated forecast Galt and Taggart still assumes single digit growth in 2H21 amid pandemic risks with the number of active virus cases peaking since mid-July 2021. “On the positive side, Georgia now has sufficient vaccine supplies (Pfizer, Sinovac, Sinopharm and AstraZeneca) and there are already strong demand on vaccination boosted by new pandemic wave. That said, the pace of vaccination accelerated markedly since end-July, with daily vaccine doses administered increasing c. 8x compared to the beginning of July. As a result, vaccines administered more than doubled over the same period with c. 689 thousand vaccines managed (c. 19% of population, of which 5.7% fully vaccinated and 12.8% given 1 dose) as of 11 August 2021” – reads the report, suggesting that if recent pace of vaccination continues it is achievable for the government to vaccinate 60% of adult population by end-2021.
Galt and Taggart also mentions that despite elevated virus cases government avoids to reintroduce strict restrictions in high tourism season and considering local elections planned for 2nd October. However, Government reintroduced wearing masks in open air and some other restrictions are still in place (the work of bars and restaurants remains limited to midnight, nightclubs are closed, and large-scale entertainment and social events remain banned).
“If Georgia avoids strict COVID related restrictions and vaccination accelerates, we also see the likelihood of higher growth at 11.2% in 2021. For 2022, we forecast growth to remain solid at 5.7% and to support strong growth momentum from 2023 we see need to attract FDI” – says Galt and Taggart.
Georgia’s 2021 growth projection was revised upwards by different institutions also recently – Government and IMF project 7.7% growth, while NBG expects growth at 8.5%. Importantly, on 6 August 2021, Fitch Ratings revised Georgia’s sovereign credit rating outlook to Stable from Negative and affirmed at BB, which is a return to pre-pandemic indicator.
Based on Fitch, the outlook revision reflects a much-improved macroeconomic baseline, and Fitch's confidence that the Georgian authorities will continue implementing policies supporting macroeconomic stability and medium-term sustainability of public finances. Fitch revised up 2021 real GDP to 7.8% from 4.3%. For 2022-2023, Fitch forecasts real GDP growth to average 5.4%, above potential of 4.0-4.5%, supported by a more robust recovery in the tourism sector and an increase in investment.
