Real GDP shrinks 5.3% y/y in August 2020
Georgia’s economic contraction eased to 5.3% y/y in August 2020 after falling 5.5% y/y in July 2020 and 12.3% y/y in 2Q20, according to Geostat’s rapid estimates. In August, real growth was positive only in mining sector. Overall, real GDP growth was down 5.6% y/y in 8M20. Monthly rapid estimates are based on VAT turnover, fiscal and monetary statistics.
Inflation was 3.8% y/y and 0.7% m/m in September 2020
Annual CPI inflation retreated to 3.8% in September 2020 from 4.8% in previous month, according to Geostat. Core inflation (non-food, non-energy) was 5.2% in September 2020, while core inflation excluding tobacco was 4.7%. Annual price changes were driven by price increases in food and non-alcoholic beverages (+6.3% y/y, +1.97ppts) and health (+7.5% y/y, +0.61ppts) categories and price drop in transport (-7.0% y/y, -0.87ppts) category. On a monthly basis, inflation was 0.7% in September 2020.
Current account deficit doubled in 2Q20
Current account deficit came in at 9.4% of GDP or US$ 337.1mn (+97.3% y/y), according to NBG. Merchandize trade deficit, traditionally the major contributor to deficit creation, declined by 39.8% y/y to US$ 530.1mn, as exports fell by 23.4% y/y, while imports were down by 30.3% y/y. Positive service balance declined by 98.4% y/y to US$ 9.0mn (0.3% of GDP), reflecting the drop of tourism inflows due to COVID pandemic. Surplus in current transfers amounted to US$ 339.1mn (9.5% of GDP, up 1.4% y/y). Together, services and transfers financed 66% of the trade deficit. Notably, other investments at US$ 603mn were key funding source of CA deficit and net FDI stood at US$ 148.9mn.The international reserves were up by US$ 190.6mn.
Government projects a 5.1% deficit in the 2021 draft budget
The government has submitted a first draft of 2021 budget to the Parliament, in which fiscal deficit is set at 5.1% of GDP. Tax revenues are expected to increase by 16.1% y/y to 22.4% of GDP in 2021. Current expenditures are projected at 22.5% of GDP (-5.2% y/y), but is subject to revisions in final draft based on more complete information about the vaccine, the IMF’s updated world economic forecasts and consultations with the IMF mission in Georgia in October. Capital expenditures remain high, and is set at 8.3% of GDP in 2021. Notably, the government plans to repay US$ 500mn Eurobonds in 2021 if there are no complications with the virus and economic parameters (the source will be accumulated deposits, which expected to reach GEL 4.2bn at the end of 2020). Public debt is projected to decline from 57.9% of GDP in 2020 to 55,9% GDP in 2021.
NBG sold US$ 20mn
On 2 October 2020, the NBG intervened on the FX market and sold US$ 20mn to limit GEL volatility. This was 15th FX intervention YTD for a total sale of US$ 469.7mn through FX auctions.
