September 2020 GDP Forecast | Riding out the pandemic storm: trends, projections and uncertainties
23 September 2020

ISET-PI has updated its real GDP growth forecast for the third and fourth quarters of 2020. Here are the highlights of this month’s release:

Recently, Geostat has released the preliminary estimate of real GDP growth for the second quarter of 2020, which now stands at -12.6%.

The real GDP growth rate contracted by 7.7% and 5.5% year-on-year in June and July 2020, respectively. Consequently, the estimated real GDP for the first seven months of 2020 amounted to -5.8%.

ISET-PI’s forecast of real GDP growth for the third quarter of 2020 stands at -11.6%. The second estimate for the fourth-quarter growth forecast stands at -11.8%. Notably, our econometric model depends only on the retrospective information (past observations), thus, an abnormally large negative growth of the real GDP during the quarantine period causes overestimation of the contraction in the following quarters.

Based on July’s data, we expect annual growth in 2020 to be -8.5%. Once again, this is most likely an overestimation of the reality, since the nature of the shock (a transitory lockdown event) in the second quarter of 2020, had not had relevant analogues in the Georgian data.

In addition, the National Bank of Georgia revised its expectation for real GDP growth down from -4% to -5% in 2020. According to the Monetary Policy Report, among the reasons behind the prediction’s downward revision is weaker external demand than previously expected due to delays in the resumption of tourism inflows. However, domestic demand has been stronger than anticipated which was facilitated by fiscal stimulus and stronger credit activity as well as by better-than-expected remittance dynamics. The later effect is not expected to be strong enough to outweigh the effect of reduced external demand.