TBC Capital published Monthly Macro Update. According to the document, December GDP growth came out stronger than expected at 8.3% YoY, driving the 2023 annual average up to 7.0%. Unlike previous months, the partial recovery in Ferro-alloys exports contributed positively. Furthermore, December estimates for net inflows improved further primarily driven by higher tourism revenues, while the net export of goods remained flat and the migration seems to be somewhat declining again. Going forward, 2024 growth outlook stands at around 5.0%.
Low inflation drove monetary policy easing
Annual headline inflation came in at 0.4% in December 2023 and at 0.0% in January 2024, broadly in line with expectations while monthly seasonally adjusted measures of underlying inflation such as domestic and service one are close or below the 3% target. As a result, the National Bank of Georgia delivered two 50 basis points rate cuts in December and January, reducing the MPR from 10.0% to 9.0%. Going forward, considering other drivers, including still tight stance in the US, despite normalization is economic activity stronger credit growth both in nominal and especially in real terms, still elevated unit labor costs as well as the baseline inflation to return or even somewhat overshoot to the target in the second half of the year, monetary policy is expected to normalize further, however, only gradually with the refinancing rate at 8.25-8.50%.
GEL seasonal depreciation sentiments overturned, though, further material strengthening not expected
"The combination of improved net inflows, NBG interventions and broadly stable REER resulted in the USD/GEL stabilization and even marginal appreciation at the end of 2023. Furthermore, we observed some positive shift in sentiments measured as higher growth of GEL deposits compared
to the FC in January. However, we still do not bet on further material GEL strengthening based on TBC Capital 3 Pillar approach. Namely, we assess net inflows and inflation outlook as broadly neutral, while the GEL REER as negative. What we can say on the TRY pass-through? Well, as we have not conducted the updated analysis, only same what we judged earlier. Overall, the end of year baseline for the EUR/GEL and the USD/GEL stands at around 3.14 and 2.80, respectively", - the document reads.
