Quarter 1 2022 | Macro Review: A perilous road ahead: the Georgian economy at the start of Russia’s war on Ukraine
01 July 2022

Russia’s invasion of Ukraine has profoundly affected nearly every aspect of the global economy, from food and energy security to supply chains and financial markets. The World Bank (June 2022) estimates that the 2021 5.5% rebound global growth is therefore expected to drop to 2.9% y/y in 2022. This slowdown has also been caused by fading pent-up demand from the pandemic, high inflation, and the withdrawal of policy support in major industrialized economies. The International Monetary Fund suggests that the United States and Eurozone are projected to expand by 3.7% and 2.8%, respectively, while China is expected to grow by 4.4% in 2022, a decline from the estimated 8.1% growth in 2021. In addition, the World Bank anticipates moderate growth from Georgia’s neighbors this year: Armenia (+3.5% y/y), Azerbaijan (+2.7% y/y), and Turkey (+2.3% y/y). The Russian economy, on the other hand, is expected to fall by 8.9% y/y. Moreover, supply chain disruptions, increasing energy prices, and worsening financial conditions have all led to downward revisions for projected growth in advanced economies. The economic growth in advanced economies is expected to reach only 2.6% in 2022 – 1.2 pp below previous forecasts. Expansion in emerging markets and developing economies (EMDEs) have equally been adjusted downwards, measuring 3.4% y/y compared to the 6.6% growth of 2021.

According to Geostat’s latest GDP growth estimates, the Georgian economy grew by 14.4% y/y in the first quarter of 2022 (due to eased travel restrictions, accelerating growth in partner economies, and recovering production processes), which had a positive effect on Georgia’s external trade balance. Prior to Russia’s invasion of Ukraine, the Georgian economy was recovering from the pandemic, which was also supported by increased domestic activity and external demand. Besides growing exports and a gradually increasing number of tourists, in the first two months of 2022, there was a significant rise in instant money transfers.