Economic Analysis - Improving External Environment To Lift Growth - DEC 2017

BMI View: The Georgian economy is set to benefit from an uptick in regional economic activity, which will in particular support its commodity and tourism sectors. Accelerating export growth will narrow Georgia's chronically wide current account deficit and start to reduce the country ' s high dependence on external financing.

The Georgian economy is set to continue outperforming regional peers, with real GDP growth coming in at 4.0% in 2017 and 3.8% in 2018, according to our forecasts. The strong economic expansion will mainly be driven by a recovering external sector. Georgia recently signed a free trade agreement China, which will help boost domestic demand on account of cheaper Chinese products and will provide tailwinds to Georgian exporters. Furthermore, Georgia will also receive tailwinds from recovering growth in neighbouring Azerbaijan and Russia, after both economies were in recessions in 2016 on account of low global commodity prices. The improving external environment will narrow Georgia's massive trade deficit over the coming years and lessen the country's dependence on external financing, which represents a major downside risk for the economy. Given these strong export dynamics we expect Georgia's current account deficit to improve and narrow from 13.0% of GDP in 2016 to 11.0% of GDP in 2017 and 9.9% of GDP in 2018.

Regional Economic Revival Crucial For Growth

Regional Economy Recovering
Caucasus - Real GDP, % chg y-o-y
f= BMI forecast. Source: National Sources/BMI

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