Galt&Taggart published a report on Georgian Economy-Russia-Ukraine War Impact. According to the report, the Georgian economy has track record of navigating different types of global and regional shocks relatively well. This is supported by a stable macroeconomic environment, prudent monetary and fiscal policies, a business-friendly environment, and a healthy banking sector. In the face of Russia-Ukraine war, Glat&Tagagrt expects GDP to remain in positive territory growing by 3.0% in 2022 (revised downwards from our initial forecast of 5.0%) considering already imposed sanctions on Russia, and expect 1.0% contraction in worst case. Notably, central bank vowed to smooth market panic if it arises and government announced that it’s working to minimize negative impact from external shock on the economy. Galt&Taggart does not rule out upside in growth outlook as Georgia being a relatively stable destination may attract financial assets from the regional countries.
2022 growth scenarios
Despite unprecedented geopolitical situation, we expect external balance (goods trade, remittances, and tourism) to remain positive in 2022 even in the worst case scenario (scenario 2 discussed below) in contrast to the loss incurred in 2020 due to COVID pandemic (as tourism impact was more pronounced). However, compared to the initial forecast Galt&Taggart estimates Georgia’s external loss at US$ 2.0bn in 2022. In worst case scenario Galt&Taggart estimates exports and remittances to reduce by US$ 520mn y/y, which is far below of US$ 2.7bn y/y loss incurred from only tourism in 2020.
Scenario1, resolution of Russia-Ukraine war in 1-2 months: this scenario is based on current situation (EU/US sanctions on Russia throughout 2022, including SWIFT exclusion for some Russian banks, etc.) and assumes cease-fire between Russia-Ukraine to be reached. In this case Galt&Taggart forecasts GDP growth at 3.0% in 2022, GEL/1$ at 3.25 and inflation at 7.0%. In this scenario, Galt&Taggart assumes tourism to recover at 75% of 2019 level (down from 85% recovery in our initial forecast).
Scenario 2, protracted resolution of Russia-Ukraine war: this scenario assumes additional sanctions on Russia (e.g. sanctions on Russian oil and gas) and protracted conflict. Galt&Taggart expects economy to contract by 1.0% in 2022, GEL/1$ at 3.4, and inflation at 9.0%. In this scenario, Galt&Taggart assume tourism to recover at 60% of 2019 level (down from 85% recovery in our initial forecast).
