Quarter 2 2022 | Macro Review: The Georgian economy shows resilience in Q2 2022, despite the global headwinds from the war on Ukraine
03 October 2022

Following the tentative recovery observed in 2021, global economic conditions worsened significantly in 2022 (IMF, July 2022). Russia’s invasion of Ukraine on 24 February 2022 caused global economic growth estimates to drop for the first time since 2020. Besides the direct consequences of the war on Ukraine (i.e. the rise in oil and gas prices, and global staple food shortages), increasing inflation in the United States, Europe, and the rest of the world has led to tightened financial conditions, which in turn has made it more difficult for developing and emerging countries to borrow on international markets. Furthermore, the resumption of lockdowns in China caused by recent outbreaks of COVID-19 and the negative effects stemming from Russia’s invasion of Ukraine has put the brakes on Chinese economic growth. These developments have led the IMF to adjust their expected global economic growth downward to 3.2% from the baseline of 6.1% last year. They also predict Georgia’s neighbors to show slow to moderate growth in 2022: Armenia (+1.5% y/y), Azerbaijan (+2.8% y/y), and Türkiye (+4% y/y). The Russian economy, on the other hand, is expected to fall by 6% y/y. The projected growth in emerging markets and developing economies (EMDEs) has been adjusted downward as well. Currently, EMDEs are expected to grow by 3.6% y/y compared to the 6.8% growth in 2021 (IMF, July 2022).

The prospect for growth in Georgia received a surprising boost this year. According to GeoStat’s latest GDP growth estimates, due to higher aggregate demand, the Georgian economy grew by 7.1% y/y in the second quarter of 2022 (National Bank of Georgia, August 2022). This could be attributed in part to the increased inflow of Russian citizens into Georgia since the beginning of the war in Ukraine, alongside an unprecedented inflow of money transfers from Russia (e.g., in the first seven months of 2022, the inflows from Russia were seven times higher than during the corresponding period of 2021). Because of the improving external sector and high credit activity, NBG’s real GDP growth expectations have been adjusted up to 9% y/y from the previous estimate of 4.5% y/y (NBG, May 2022). ISET-PI’s GDP forecast placed the 2022 annual real GDP growth at 13.8% y/y (Figure 1 below). This increased economic growth will also have a negative effect on inflation, which has already reached double digits – standing at 10.9% y/y in August 2022 (GeoStat, September 2022).