Considering Georgia's better-than-expected growth in 1Q, we revised 2023 annual growth forecast upwards to 5.8% from 4.8%, Galt & Taggart one of the leading investment banks in Georgia, says in its monthly economic review published today.
According to the report, "Real GDP growth accelerated to 7.3% in Mar-23, from 5.8% growth in previous month. Overall, in 1Q23, growth came in at 7.2%. In March, construction, financial, trade, and transportation and storage sectors drove the growth. Meanwhile, manufacturing, energy and real estate sectors contracted. Considering better-than-expected growth in 1Q, we revised 2023 annual growth forecast upwards to 5.8% from 4.8%."
The authors of the report expect disinflation to continue, supported by delayed GEL appreciation pass-through and the high base effect of last year.
"Headline CPI retreated to 5.3% y/y in March, marking the 6th consecutive monthly decline. Core inflation also reduced to 5.0% from February’s reading of 6.6%. We expect disinflation to continue, supported by delayed GEL appreciation pass-through and the high base effect of last year. Considering rapid reduction in inflation in March, we revised our average annual inflation forecast downwards to 4.7% from 5.2% in 2023 and expect inflation close to the 3.0% target at end-23."
Considering sharp deceleration in inflation, Galt & Taggart does not rule out first rate cut in May-23.
"The NBG kept its key rate unchanged at 11.0% at Mar-23 meeting. NBG expects inflation to decline below the 3.0% target in 2H23, due to high base effect. Considering sharp deceleration in inflation, we do not rule out first rate cut in May-23. Overall in 2023 we see room for 100-150bps rate cut."
The researchers revised average GEL rate to 2.55 vs dollar from 2.65 for 2023.
"The GEL strengthened by 7.5% vs dollar year-to-date, after gaining 12.5% in 2022. The continued robust growth of external inflows has been the key factor behind the currency's strength. Notably, NBG purchased US$ 460.5mn in 1Q23 to build reserves. We revised average GEL rate to 2.55 vs dollar from 2.65 for 2023."
