TBC Capital Published Monthly Macro Update. According to the document, the economic momentum continues with a robust 9.2% annual growth in May, in line with TBC Capital's expectations.
TBC estimates for June indicate further expansion. The external sector remains strong as the first quarter current account deficit improved, narrowing to 5% of GDP in NSA terms and to 2.7% when adjusted for seasonality.
"We think the second quarter print should be even better, judging from the latest key drivers, with conventional tourism at full speed. However, relative moderation in economic growth, largely due to the high base effect, is expected in the second half of the year. At the same time, important to note that the NBG BoP-based assessment of the remittances demonstrates a 15% YoY increase in the first quarter, while so-called instant money transfers through payment systems demonstrate a 20% decline over the same period. This result also substantially exceeds our adjustments published earlier and, therefore, is leading to a better outlook, to be more precisely quantified later as well.
Somewhat over-the-target inflation pressures have eased slightly, dipping below 3% after a brief period of exceeding it when looking at a MoM SA basis while the annual headline measure stood at only 2.2% in June. Underlying, in the Georgian context, service inflation shows signs of normalization, however, domestic prices outside the service sector have risen noticeably in the past two months as the growth is yet only expected to normalize while credit as well as unit labor costs remain strong. At the same time, the PPI, often seen as a leading indicator of consumer prices, shows moderation. Overall, when considering other drivers as well, such as the tight monetary policy stance in the US, it seems the GEL policy rate will stay at around the same 8% level throughout the year.
On the exchange rate side, while the very recent appreciation is in line with our expectations, once again unless the USD weakens substantially worldwide, we do not bet on the sharp appreciation against the greenback. In other words, based on the TBC Capital 3 pillar approach, we say: a) net inflows when combined with so-called sentiments – GEL-neutral, earlier assessed as GEL-positive; b) the GEL REER – neutral, previously judged as negative; and c) inflation – GEL-neutral, with no material changes in the assessment", - the document reads.
