Georgia’s real GDP growth reached 5.9% y/y in 9M14 outperforming regional peers. The private sector has been the main driver of growth so far in 2014, accounting for the bulk of the investment spending, which was up 28.1% in 1Q14 and up 27.6% in 2Q14. The private sector’s strong performance has also generated strong tax revenues (2.7ppts above plan) and credit growth of 21% in 9M14. Inflationary pressure remains low with inflation 3.4% in October, well below central bank’s target of 6.0%. However, the increased trade deficit, moderate growth of remittances and tourism revenues and weak FDI weigh on Georgia’s external balance and may put moderate pressure on lari. As 9M14 budget deficit reached to 1.1% of GDP, there is a room for fiscal expansion to boost growth. We expect 5.0%+ annual GDP growth in 2014 even without planned fiscal stimulus, supported by private sector investments. 2015 draft budget aims at fiscal consolidation with deficit declining to 3.0% of GDP and public debt at a comfortable 35.7% of GDP. Fiscal framework remains prudent with total expenditures below 30% of GDP in 2015. The share of capital spending increases by 1.3ppts y/y since growth of capital spending at 15.0% y/y significantly outpaces 5.9% y/y increase in current spending in 2015 draft budget. Overall, economy remains well diversified, resilient to geopolitical tensions and medium term growth looks sustainable.
Private sector driving growth in 2014 with investments up 27.6% y/y in 2Q14. Private investments drove the growth in the quarter, accounting for 89.2% of the total investments and up 25.5% y/y in 2Q14. Public investments also increased 49% y/y in 2Q14, although from a lower base. As a result, investments as a share of GDP increased 5.5ppts y/y to 31.4% in 2Q14.
Private consumption continued its upward trend, adding 5.3% y/y in 2Q14 – the biggest hike since 4Q13. Notably, despite resumed consumption and moderate growth of remittances, national savings continued to grow and reached 23.1% of GDP in 2Q14 (+2.2ppts y/y).
The contribution of construction was the highest to 2Q14 growth. Construction increased 17.9% y/y in 2Q14; communications (+10.0%) financial sector (+9.6%), manufacturing (+8.1%) and transport (+6.9%) were the other top performers. Georgia’s economic structure remains well diversified, with the two biggest sectors (trade and manufacturing) accounting for just 33.8% of 1H14 GDP, ensuring the economy’s flexibility in the face of regional uncertainties.
Economic activity remains solid with real GDP growing 5.5% in 3Q14 according to Geostat’s preliminary estimates, despite a drop in exports. As a result, 9M14 real GDP growth remains solid at 5.9% y/y, once again marking economy’s flexibility and resilience to external shocks.
