In Georgia, growth recovered to 4.7% from 3.3% in 2013, though the current account deficit widened to 9.5% of the gross domestic product (GDP). The depressed economies of major trading partners will halve growth to 2.0% in 2015 but allow some recovery in 2016 as the external outlook improves slightly. Currency depreciation could raise inflation to 5.0% in 2015 and 2016, as falling exports and remittances expand the current account deficit to 12.0% of GDP before narrowing somewhat in 2016.
|Selected Economic Indicators (%) - Georgia||2015||2016|
|Current Account Balance (share of GDP)||-12.0||-10.5|
Source: ADB estimates.
Georgia's gross domestic product (GDP) expanded by an estimated 4.7% in 2014, up from 3.3% in 2013. Data through the third quarter of 2014 indicated that the recovery reflected mainly gains of 8.5% in industry, particularly in construction, and 5.4% in services, in particular for financial intermediation and tourism. In the same period, agriculture expanded by only 1.3%.
On the demand side, growth came from a 5.5% expansion in consumption and, in particular, a 21.2% rise in investment, mainly in the private sector. However, a major slowdown began in the fourth quarter and continued into 2015 as the drop in oil prices and the impact of economic sanctions on the Russian Federation triggered recession there and much slower growth in other key trading partners. As a consequence, their imports from and remittances to Georgia plunged.
Declining prices for ferroalloys, which represent 10% of Georgia’s exports, also reduced export earnings. The decline in foreign exchange inflows put downward pressure on the Georgian lari, which depreciated by about 6% against the US dollar from October 1 to year-end and a further 15% by March 2015.
Growth is expected to slow to 2.0% in 2015 in tandem with slowdowns in the European Union and neighboring Azerbaijan and a projected recession in the Russian Federation. Some recovery in growth, to 2.5%, is forecast in 2016 as manufacturing strengthens and services pick up. The European Union Association Agreement with Georgia includes provisions for a Deep and Comprehensive Free Trade Area that, along with expected improvement in the global environment, should support exports and remittances during 2016 while boosting foreign direct investment from Europe. Higher public spending and a stable political situation following peaceful parliamentary elections in 2016 would support growth by strengthening consumer and investor confidence.
Excerpted from the Asian Development Outlook 2015.