Growth in Georgia’s gross domestic product (GDP) slowed to 1.7% year on year in the first 7 months of 2013, reflecting investor caution linked to the political transition, delays in public infrastructure projects, weak domestic demand, and slower global growth. Recovery in agriculture and some resilience in communications, trade, and financial services helped offset a 9% drop in construction.
|Selected Economic Indicators (%) - Georgia||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-11.9||-10.1||10.7||-10.0|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
Because of these developments, the Asian Development Outlook (ADO) 2013 Update lowers the growth forecast for 2013 from 5.5% in April to 3.0%. In addition, the growth forecast for 2014 - which assumes accelerated growth in agriculture and food processing, continued strength in services, and improved investor sentiment - has been cut to 5.5% from 6.0%.
Annual inflation was only 0.2% in June 2013, mainly reflecting higher prices for food and utilities. This followed a period of deflation during the first 5 months of the year attributable to subdued aggregate demand and low inflation in Georgia’s main trading partners. The government’s efforts to strengthen competitiveness and enhance governance by curbing anticompetitive practices have also tempered price increases. Accordingly, the Update lowers the inflation forecast for 2013 from 3.0% in ADO 2013 to 1.5%, while maintaining it at 4.0% for 2014.
Early evidence suggests that the current account deficit may narrow in 2013 on account of higher workers’ remittances, a surplus in services, and a stronger trade balance due in part to slower growth and correspondingly lower imports. In the first half of 2013, exports rose by 8.6% year on year, following the reopening of trade with the Russian Federation, while imports fell by 6.6%. Accordingly, the ADO 2013 Update reduces the current account deficit forecast from 11.9% of GDP to a still high 10.1% for 2013 and from 10.7% to 10.0% for 2014, contingent on a favorable outlook for Georgia’s major trading partners. Strong capital inflows pushed official reserves up to $3.0 billion during the first half of 2013. Total external debt remains worrisome, however, at 63% of GDP.
Source: ADB. 2013. Asian Development Outlook 2013 Update. Manila.