The COVID-19 outbreak has negatively affected the Georgian economy through a reduction in FDI, exports of goods and services, and remittances. In addition, uncertainties caused by the pandemic and containment measures hit consumption and domestic investment. As a result of this reduction in aggregate demand, combined with increased production costs due to pandemic-related constraints, GDP is expected to contract by 5% in 2020 according to NBG’s latest monetary report. The growth estimate has been revised downward since May, when NBG’s forecast stood at -4%. The revision was driven by weaker-than-previously-anticipated external demand, which is mainly caused by delays in the resumption of international flights. According to an alternative scenario, in which pandemic-related restrictions remain in place the whole year, a 6.5% decrease in GDP is expected in 2020.
The strict containment imposed by the government in late March and April (needed to prevent the spread of the virus) drove various forms of economic activity (especially tourism) to a standstill. According to GeoStat’s latest estimates of GDP growth, Georgia’s economy shrank by 12.6% y/y in the second quarter of 2020.
Fiscal stimulus combined with a gradual easing of monetary policy improved credit activity, and better-than-expected remittances helped to mitigate a deeper impact from COVID-19 in the second quarter. However, the rebound in domestic demand was overbalanced by weaker external demand, as international travel remains broadly banned and Georgia has opened its borders to only a few countries.