TBC Capital published Update From The Chief Economist. Accoridng to the document, December trade in goods demonstrates a strong dynamic with an especially noticeable rebound on the exports side. The detailed data will be available later this week. The positive data was also published regarding the central bank net international reserves with a sizable increase in the same month, though, once again, not necessarily to be released if the GEL weakens somewhat depending on the GEL REER assessment and an inflation outlook. On the REER side, the Euro has appreciated further supporting the GEL/USD.
"What the recent EUR/USD pair and the outlook may imply when taking an FX risk with the GEL income stream? Judging from the fact that the GEL is more stable against the EUR, rather than against the USD – and given that growth appears to be more stable in EUR and that the EUR/USD is likely appreciating over the medium term in the baseline scenario – EUR/USD diversification appears to be the optimal solution, though still probably with a somewhat higher share of USD for business borrowers. It is important to highlight that while a stronger USD scenario
may be less likely, in such a case the adverse impact would be much higher, thereby supporting the argument for EUR credit, even under a EUR strengthening baseline. Lower interest rates is also an argument in favor of the EUR. Also the diversification with at least some share of the GEL is always a wise decision as the elasticity of NPLs to exchange rate depreciation is non-linear and has low impact during relatively low rates of depreciation.
We also note that our earlier projection of the growth in 2023 of 3.5% now looks rather pessimistic as a) the baseline for the tourism inflows including the migration effect should likely be much more than expected; b) we have re-estimated the seasonality leading to a different assessment of the base effect and c) the global growth outlook seems to be at least to some extent better than anticipated earlier. We will address the topic in more detail in our forthcoming publication, however, at the moment the best guess for this year looks to be around 5%", - the document reads.
