TBC Capital Published Macro Update – Georgia.
According to the document, the imposition of tariffs by US President Donald Trump has undoubtedly been the hottest topic over the past week, with uncertainty soaring.
Nevertheless, economists worldwide have been trying to estimate the shock impact, and we are also in the same rocking boat;
Amid growth concerns overshadowing inflation worries, markets have turned bearish on the USD;
In the medium term, within the context of the GEL/EUR/USD and the UZS strategy, we continue to expect that the EUR will strengthen, as it remains undervalued from a long-run perspective;
On the backdrop of particularly high unpredictability, should tariffs stay in place, we estimate that, while the direct impact will be limited, weaker economic growth in partner countries could lower growth by up to 0.7 percentage points in Georgia;
The EU, the US, Israel, and China accounted for over 35% of overall foreign currency inflows in Georgia in 2024 and are set to take a relatively harder hit due to high interlinkages;
At the same time, falling oil prices imply weaker inflows from oil producers, although we estimate the net exposure to be broadly balanced due to lower outlays on oil imports;
Regarding the GEL, in our view, the domestic component remains a more important GEL driver, at least in the near term, for which we maintain our broadly neutral stance;
For sure, a weaker greenback is an upside for the GEL, however, an also weaker rest of the world is a downside;
As for inflation, we expect the immediate disinflationary effect of lower oil prices to become evident fast, lowering annual inflation by 0.1-0.2 percentage points as soon as in the next month and potentially by up to 0.5 percentage points down the line if global prices remain unchanged.
