Georgia is continuing to grow robustly by 5.9% y/y in 9M14 despite Russia’s economic slowdown and regional turbulence. We expect the solid performance to continue. Remittances, the biggest exposure for Georgia to Russia, remain resilient, as a decline in Russian transfers was fully offset by higher remittances from other countries. Our estimates suggest that negative impact on Georgia arising from Russia’s economic troubles could reach one-time 1.16% of GDP, but this is more than offset by country’s savings on oil products, estimated at 1.7% of GDP. Spillover effect from other countries, like Azerbaijan, Armenia and Turkey are limited, while negative impact from Ukraine crisis seems already absorbed. Weaker external environment may put moderate pressure on lari, but falling oil prices are helping economy to maintain strong growth and improve external accounts. Moreover, as we have pointed out in previous reports, the Georgian economy benefits from a stable macroeconomic environment, prudent monetary and fiscal policies, a business-friendly environment, and a healthy banking sector. This is reflected in increasing investment from local and international investors.
 

Georgia’s economy remains resilient to the economic slowdown in Russia and increased regional geopolitical risks. Georgia’s economy expanded by 5.9% y/y in 9M14 despite economic troubles in Russia and the regional tensions.

In this report, we examine Georgia’s direct links with Russia to estimate the potential spillover effect, and we estimate the indirect effects on Georgia, via Georgia’s key partners Azerbaijan, Armenia, Turkey and Ukraine, economies which are important for Georgia’s exports, remittances, investments and tourism sector to varying degrees.
 

In 9M14 Georgia’s exposure to Russia was the following:

Remittances from Russia accounted for 50.5% of total money transfers, or 4.6% of GDP
Exports to Russia accounted for 9.9% of total exports, or 1.8% of GDP
Arrivals from Russia accounted for 15.3% of total arrivals and receipts from Russian tourists reached 1.8% of GDP
FDI from Russia accounted for 9.2% of total inflows, or 0.3% of GDP in 1H14