private consumption. Domestic demand has been bolstered by rising real wages GEORGIA Key conditions and (up 10.9 percent in H1, yoy) along with strong credit growth (up 20.4 percent in challenges real terms in H1, yoy). On the supply side, growth was led by services, including Table 1 2023 Over the past decade, Georgia has education and transportation followed by Population, million 3.7 achieved considerable progress in income public administration and trade. GDP, current US$ billion 30.5 growth and poverty alleviation following Annual inflation moderated to 1 percent GDP per capita, current US$ 8218.4 earlier market reforms and strengthened (yoy) in August, despite a 7-percent (yoy) a 4.3 International poverty rate ($2.15) macroeconomic management. rise in the transport and hospitality sector. a 15.0 Nevertheless, structural challenges persist, Core inflation was 0.9 percent (yoy), Lower middle-income poverty rate ($3.65) a 47.7 notably weak firm-level productivity growth down from 2.7 percent a year ago. The Upper middle-income poverty rate ($6.85) Gini index a 33.5 and limited high-quality job creation. Central Bank has lowered its policy rate School enrollment, primary (% gross) b 103.4 About a third of workers remain engaged by a cumulative 150 basis points since b 71.6 in low-productivity agriculture; Georgia the beginning of the year, reflecting eas- Life expectancy at birth, years also has a large share of self-employed in ing inflationary pressures. Total GHG emissions (mtCO2e) 18.1 other sectors. Access to finance, particu- The banking sector remains profitable, Source: WDI, Macro Poverty Outlook, and official data. larly for SMEs, and skills mismatches, are with return on assets reaching 4.2 per- a/ Most recent value (2022), 2017 PPPs. b/ WDI for School enrollment (2023); Life expectancy among the critical obstacles, firms face. cent in June 2024 and return on equity (2022). Georgia's economic openness and reliance reaching 24.4 percent. NPLs are low at on tourism further increase its vulnerabil- 1.6 percent in June 2024. ity to external shocks, such as geopolitical The current account deficit narrowed by tensions, global market volatility, and pan- 1.5 percentage points (yoy) in H1 2024, to Growth reached 9.1 percent in H1 2024, demics. Nonetheless, the recent granting 6.0 percent of GDP, despite a deficit rise of in December 2023 of EU candidate status 16.9 percent in the trade of goods. This was driven by strong private consumption presents Georgia with a strategic oppor- offset by positive contributions from the due to rising real wages. Unemployment tunity to accelerate reforms. The EU ac- services sector and current transfers. Ex- decreased and poverty continued to de- cession process could provide a platform ports of goods fell 7.8 percent (yoy) in H1 cline. Growth is projected at 7.5 percent for enhancing governance, aligning regu- 2024, driven by weaker domestic exports lations, and boosting economic resilience, (down 11.5 percent, yoy) as commodity for 2024. Weakening exports and remit- thereby enabling Georgia to converge with exports slowed, whereas imports grew 2.4 tances suggest a widening of the current more prosperous EU member states. percent (yoy). Gross money transfers fell account deficit in 2024. The fiscal deficit 30.3 percent (yoy) in H1, with inflows is expected to reach 3 percent. Risks to from Russia decreasing 71.4 percent the outlook remain, notably related to (yoy). However, this decline was partly the October Parliamentary elections. Recent developments offset by increased inflows from the EU, US, and UAE. Proceeds from internation- Georgia's economy expanded by 9.1 per- al visitors increased 5 percent (yoy) in H1 cent in H1 2024, driven by public and 2024. On the financing side, lower net FDI FIGURE 1 Georgia / Gross money transfers from abroad and FIGURE 2 Georgia / Actual and projected poverty rates and tourism proceeds real GDP per capita Million US$ Poverty rate (%) Real GDP per capita (constant LCU) 1600 80 25000 1400 70 1200 20000 60 1000 50 15000 800 40 600 10000 30 400 20 200 5000 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2020 2021 2022 2023 2024 International poverty rate Lower middle-income pov. rate RF US EU Others Tourism proceeds Upper middle-income pov. rate Real GDP pc Sources: Geostat, NBG, and World Bank staff estimates. Source: World Bank. Notes: see Table 2. MPO 1 Oct 24 inflows, which accounted for about 3.6 fell 3 percentage points, to 13.7 percent as the deficit is projected to remain below the percent of GDP in H1, highlighted weak of end-June, which was accompanied by a level of 10.3 percent recorded in 2021. external investor confidence. higher labor force participation rate. On the fiscal side, tax revenues are expect- The GEL depreciated by 4.1 percent against ed to remain strong, contributing 25 per- the USD in the first eight months of 2024. cent of GDP in 2024, boosted by the tax The GEL remains 11.8 percent stronger hikes on gambling, effective from July 2024. than its end-2021 level. Official reserves Outlook Total expenditure is anticipated to rise to 31 fell 14 percent (yoy) in July to USD 4.7 bil- percent of GDP due to election-related ex- lion, equivalent to 3.3 months of imports. Growth is expected to reach 7.5 percent in penditure; the deficit is expected to remain Georgia’s fiscal performance remained sol- 2024, buoyed by private consumption dri- at 3 percent of GDP, as per the fiscal rule. id and a deficit of 0.1 percent of projected ven by robust real wages and employment Key downside risks include uncertainties GDP was recorded in H1 2024. General figures. In the medium term, growth is ex- surrounding the post-election landscape government revenues increased 18.5 per- pected to moderate to 5 percent, returning and Georgia’s commitment to making de- cent (yoy) in nominal terms, mainly due to its potential rate. Supported by robust cisive progress on EU accession. Other to a 21.4 percent rise in tax receipts. Cur- growth, poverty is expected to keep falling risks include geopolitical tensions in the rent expenditures rose 16 percent (yoy), in the medium term. region, a faster reduction in remittances, while capital expenditure surged 27 per- Inflation is forecast to stay below the 3-per- lower tourism revenues, and rising global cent. Public debt stood at 40.4 percent of cent target in 2024 and return to the target commodity prices, all of which could im- GDP at end-June 2024. level by end-2025. Monetary policy is ex- pede growth and increase debt levels. En- Georgia's economic expansion has trans- pected to be eased to support economic suring the independence of the central lated into tangible benefits for its popu- growth, while remaining prudent. bank, maintaining sound monetary and lation, with the poverty headcount (USD The current account deficit is forecast to fiscal policy with sufficient buffers, and en- 6.85, PPP 2017) continuing to decline, widen to around 5.5 percent of GDP in suring exchange rate flexibility will be es- from 47.7 percent in 2022 to 43.6 percent 2024 and 2025, due to the slowing of exports sential to mitigating potential shocks and in 2023. During H1 2024, unemployment and remittances from Russia. Nonetheless, safeguarding macroeconomic stability. TABLE 2 Georgia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2021 2022 2023 2024e 2025f 2026f Real GDP growth, at constant market prices 10.6 11.0 7.5 7.5 5.2 5.0 Private consumption 12.3 -2.8 3.6 4.3 2.9 2.2 Government consumption 7.1 -0.8 6.2 15.9 10.1 9.6 Gross fixed capital investment -4.8 9.9 30.8 14.3 5.2 6.5 Exports, goods and services 23.5 37.4 8.2 2.5 6.0 7.0 Imports, goods and services 8.8 16.9 8.6 3.5 4.0 5.0 Real GDP growth, at constant factor prices 12.2 9.8 7.9 7.5 5.2 5.0 Agriculture 2.3 -1.8 -2.8 2.5 2.5 3.0 Industry 1.0 15.1 5.1 5.0 5.0 5.0 Services 17.4 9.6 10.0 8.7 5.5 5.2 Inflation (consumer price index) 9.6 11.9 2.5 2.2 3.0 3.0 Current account balance (% of GDP) -10.3 -4.5 -4.4 -5.5 -5.4 -4.9 Net foreign direct investment inflow (% of GDP) 4.9 7.1 4.3 3.4 4.0 4.4 Fiscal balance (% of GDP) -7.0 -3.5 -2.9 -3.0 -2.8 -2.6 Revenues (% of GDP) 24.9 26.6 27.6 28.2 27.1 26.9 Debt (% of GDP) 49.0 39.1 38.1 37.7 37.2 37.2 Primary balance (% of GDP) -5.7 -2.4 -1.4 -1.2 -0.9 -0.6 a,b International poverty rate ($2.15 in 2017 PPP) 5.5 4.3 3.7 3.1 2.8 2.5 a,b Lower middle-income poverty rate ($3.65 in 2017 PPP) 19.1 15.0 12.9 10.9 9.5 8.5 a,b Upper middle-income poverty rate ($6.85 in 2017 PPP) 55.4 47.7 43.6 39.2 36.4 33.8 GHG emissions growth (mtCO2e) 2.7 0.7 -1.2 0.3 -0.1 0.5 Energy related GHG emissions (% of total) 55.6 56.0 55.9 56.4 56.6 56.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. Notes: e = estimate, f = forecast. a/ Calculations based on ECAPOV harmonization, using 2022-HIS. Actual data: 2022. Nowcast: 2023. Forecasts are from 2024 to 2026. b/ Projection using neutral distribution (2022) with pass-through = 0.87 (Med (0.87)) based on GDP per capita in constant LCU. MPO 2 Oct 24