Economic Analysis - Improving Business Environment Supports Growth Outlook - MAY 2017

BMI View: Economic growth will accelerate in Georgia over the coming quarters, outperforming regional peers. An improving business environment and strategic location on the Black Sea coast will continue to boost foreign direct investment inflows, while the tourism industry is poised to expand at a robust rate given the precarious security environment in neighbouring Turkey.

We expect Georgia's regional economic outperformance to continue in the years ahead, after growth is estimated to have come in at 2.7% in 2016, compared to a 3.1% contraction Azerbaijan. We forecast Georgian real GDP growth accelerating to 3.2% in 2017 and 3.4% in 2018, mainly driven by household expenditure and fixed investments. Georgia's improving business environment and visa free travel to the European Union (EU), which will steadily simplify trade and business relations with European businesses, is set to boost Georgia's export oriented industries and FDI attractiveness. We expect this to provide tailwinds to the country's large tourism industry, which has enjoyed strong growth over the past years and accounts for over 7.0% of GDP in 2016.

Household confidence has been on an upward trend in 2016, boding well for a continued expansion of household expenditure. Headline inflation remains low by historical standards, and the Georgian National Bank is set to cut interest rates further in 2017, stimulating household loan growth. We expect that the Georgian lari will strengthen in 2017, following a period of currency instability in 2015-2016, increasing household purchasing power. In addition, although the unemployment rate remains elevated at around 12.0%, it has come down considerably, providing tailwinds to aggregate demand.

Georgia Outperforming Regional Peers
Real GDP Growth, % chg y-o-y
Source: National Sources, BMI

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