20.Feb .2020 17:30

TBC Bank Group: external balance remained healthy despite the negative impact from the Russian flight ban

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TBC Bank Group has published a report. According to the report, GDP growth came in at 5.3% YoY in 4Q 2019 and averaged 5.2% YoY in 2019, according to GeoStat’s initial estimates. The growth was broad-based across different sectors of the economy. In the first 9 months of 2019, trade and repairs (+7.4% YoY), real estate (+5.9% YoY), transport and logistics (+7.5% YoY), information and communication (+14.5% YoY) and the construction sector (+5.2% YoY) all significantly contributed to overall GDP growth.

As for the external sector, the overall dynamics of the external balance remained healthy despite the negative impact stemming from the Russian flight ban. Reflecting lower tourism inflows, the balance of trade in services declined slightly from 12.7% of GDP in 2018 to 12.4% of GDP in trailing four quarters as of 3Q 2019. However, this decline was counteracted by the lower deficit of trade in goods (down by 1.9% of GDP), as well as by a more moderate improvement in the income account deficit (down by 0.5% of GDP). As a result, the Current Account (CA) balance to GDP ratio improved to 4.5% as of the last four quarters ending in 3Q 2019, compared to 6.8% in 2018. The CA deficit continued to be fully financed with FDI inflows, which posted +13.7% YoY growth in 3Q 2019 after a declining trend from very high levels. As of the last four quarters ending in 3Q 2019, net FDI stood at 4.9% of GDP. Despite being somewhat below the average of the past couple of years, FDI inflows at current levels are still quite high when compared to peer countries in the neighbourhood, as well as in Central and Eastern Europe.

The positive tendency in the major components of the CA balance continued in 4Q 2019 as well. Following the dip in tourism inflows in 3Q 2019 (-6.9% YoY in USD terms), it recovered quickly to 5.4% YoY growth in USD terms in 4Q 2019, on the back of strong growth in the number of visitors from the EU, Turkey, and other neighbouring countries, offsetting the negative impact of a falling number of visitors from Russia. Growth of the exports of goods improved to 15.9% YoY in 4Q, compared to an 11.1% increase in the first 9 months of 2019. Similarly, remittance inflows also accelerated to 13.1% YoY in 4Q 2019. At the same time, imports of goods also posted a stronger growth towards the end of the year (+5.6% YoY in 4Q 2019). Overall, based on the dynamics of the major components, the CA balance probably improved further in 4Q 2019 YoY.