The COVID-19 outbreak had a devastating effect on the Georgian economy in 2020. Real GDP contracted by 6.1% according to Geostat’s rapid estimates of economic growth. This was the worst performance of real GDP growth in the country in more than two decades. According to the latest estimates, the economic reality turned out to be far worse than the mid-year projections from NBG, IMF and the World Bank for 2020, which ranged from -4% to -5% y/y. Unemployment increased by 0.9% y/y, while labor force participation decreased by 1.3% y/y in 2020. Hired employees were among those worst affected by the crisis: their number decreased by 5.8% y/y. The unprecedented simultaneous negative demand and supply shocks were at the heart of the economic devastation caused by the virus. Uncertainties related to the pandemic itself and containment measures against it considerably reduced aggregate demand both in Georgia and globally. Domestic and external demand for tourism and related services weakened significantly.
As a result, the current account deficit widened even as imports declined. The deficit, driven by lower revenues from the export of services and curtailed foreign direct investments (FDI), put significant devaluation pressure on the lari exchange rate throughout the year. In addition to demand pressures, pandemic-related constraints distorted global and regional supply chains and increased production costs. This, in turn, negatively affected aggregate supply. On the positive side, the economic impact of COVID-19 in Georgia could have been much deeper if it were not for strong fiscal stimulus, substantial bank lending, and better-than-expected remittances performance. These three factors helped mitigate the economic fallout from the epidemic in 2020.