Policy Briefs

Macroeconomic effects of the global oil price on Georgia
Tuesday, 04 August, 2015

Oil prices have endured a large and persistent decrease due to increased worldwide production and the weakness of global demand. Prices are soon expected to stabilize around USD 60/barrel. ISET-PI and GET have focused on the improved terms of trade that Georgia could potentially see due to its high share of energy imports compared to its GDP indicators. This dynamic could cause an indirect albeit upward change in demand for Georgian goods.

World market price changes fully transmit to Georgian oil price and because of this, the research team expects an immediate effect on the Georgian economy as worldwide prices for energy fall.

Using the USD/GEL exchange rate as of February 2015, the team modeled the effect of a 41% decrease in world oil prices and calculated the macro-level effects of saving GEL 503 m in 2015. The forecasted result is a 2.3% increase in disposable income in the Georgian GDP.

The team has assumed that the saved money will increase real GDP and improve Georgia’s current account balance by GEL 360.7 m. Real consumption and investments will increase by 1.9% and 0.4% of GDP, respectively. The team has also given a qualitative indication of the possible indirect effects including a limited decrease in exports and a larger share of energy importers in export destinations.

Since September 2014, the ISET Policy Institute has been working with the German Economic Team (GET). In May 2015 ISET-PI and GET extended their partnership and began working on a variety of policy briefs for Georgia's industrial development. These briefs will simultaneously advance research in the sector and provide the Georgian government a set of guidelines for the development of its own policy, exploring where Georgia's comparative advantages lie. The German Economic Team is a consulting group that provides advisory services to the Georgian government on economic policy and is supported by the German Federal Ministry for Economic Affairs and Energy.