The economic recovery continues to strengthen in Georgia despite the halt in international tourism. Decent fiscal stimulus is supporting domestic demand, along with strong growth in remittances since June 2020 and continuation of bank lending. Notably, VAT revenue growth turned positive in August 2020 for the first time since March this year, hinting at better-than-expected recovery dynamics. We do not assume the re-imposition of strict lockdown measures in our base case scenario, though the risk has increased in recent days amid rising COVID-19 cases. We maintain our growth forecast (-5.1% in 2020), but note that our GEL forecast (GEL3.1/US$ in 2H20) is skewed to the weaker side. This, however, supports further adjustment in imports and a current account deficit of below 9% of GDP in 2020, in our view. The NBG maintained its key rate at 8.0% on September 16, despite the pullback in inflation, as the regulator remains cautious of GEL weakness and a possible deterioration in sentiment due to the recent increase in COVID-19 cases and approaching elections.
