According to Geostat’s figures, in the third quarter (Q3) of 2018, Georgia’s real GDP experienced growth of 4% year over year (YoY). Despite the slowdown of the growth rate compared to the previous quarters, IMF recently revised their forecast of economic growth for Georgia upwardly, from 4.5% to 5.0%. Forecasts for other international organizations and the National Bank of Georgia (NBG) remained the same, while ISET-PI, based on October’s data, expect annual growth in 2018 to be 4.6% YoY.
The weakening of regional economic conditions is the main factor negatively affecting the Georgian economy in Q3. Recent developments in Turkey, caused by the US tariffs imposed on Turkish steel, uncertainty around the Central Bank’s policy and its independency, together with an accelerated fiscal stimulus, negatively affected Georgia via lower revenue from trade, remittances, and tourism. According to IMF, the sharp depreciation of the Turkish lira and double-digit inflation will deteriorate the economic performance of the country in 2019, and furthermore, create downward spiraling risks for Georgia. The average growth rates for other neighboring countries in Q3 2018 have also reduced markedly - 3.9% YoY in Armenia, 1.5% YoY in Russia, and only 0.6% YoY in Azerbaijan.
While internal factors, such as lower government capital spending, caused by a weak budget execution, together with deteriorating business sentiments, have hindered real GDP growth in the current quarter, meanwhile expanded credit activity has stimulated economic growth.