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TBC Capital Published Update From The Chief Economist

Natia Taktakishvili
12.12.22 14:00
TBC Capital published an update from the Chief Economist. According to the report, the GEL appreciation path continued last week, in line with TBC Capital's expectations. Though, investment bank notes that the very recent strengthening was against the USD, while the GEL/EUR pair has weakened and the REER remains broadly flat. From the analytical perspective, despite the fact that the USD/GEL is the most observed, certainly, it is most about the REER, than the EUR and only thereafter the USD.

"From TBC Capital 3 pillars, currently the GEL supportive inflows argument is even stronger, as the Q3 FDIs showed an impressive rebound, importantly also on the back of the equity, consistent with our expectations on the lagged recovery of the investment activity.

A similar conclusion follows from the NBG net FX purchase of 100 million USD in October, unlike further decline of the share of nonresidents in GEL treasury securities mainly driven by the elevated USD benchmark yield, rather than the interest rate differential. Going forward, for 2023, we expect net inflows to remain GEL supportive or at least neutral, the topic to be addressed in more details in our forthcoming publications.

On the second pillar, while the very recent REER has been broadly flat, our re-estimate of the GEL REER long term trend indicates the GEL is close or slightly above the possible equilibrium based only on this particular measure. Though, again, much depends on the EUR/USD pair and other regional currency movements. In this regard, we remind our readers, that the GEL got into trouble from 2014 which was the year when the weak dollar cycle ended. While there are many drivers, now the likely end of the strong dollar cycle is certainly the GEL positive. Therefore, we at least do not rule out the GEL to strengthen further against the USD, though, more likely in the medium term with an assumption that the 3% inflation target is met. As for the third pillar, inflation outlook in the near term, despite slower than expected cooling down, the baseline still remains disinflationary and therefore broadly neutral or the GEL negative a year ahead.

Last week, also Q3 business sector jobs data was published by the Geostat indicating a very strong rebound, notably in the relatively more productive sectors such as information and communication supporting the view of higher potential output estimates. Unlike previous labor market indicators release, in the business sector statistics the migrants are likely counted at least to some extent. Unfortunately, more precise data is not yet available", - the report reads.

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