TBC Capital published Update From The Chief Economist. According to the document, February estimated balance of trade in goods, tourism, and remittance inflows improved further reaching all-time highs with stronger than expected moderation in exports and especially imports. Yet it looks early to revise the latest 6.4% growth scenario as possibly some cooling down was also on the back of high base effect and likely one-offs.
"The breakdown of the trade data will be available later this week. On the GEL side, we stick to our view that, at the moment, strong inflows are not a necessary precondition for the GEL appreciation taking into account the disinflationary outlook and the GEL already being appreciated somewhat beyond its estimated long-term trend. Certainly, higher than expected print of unit labor costs raises questions on the disinflationary outlook, however, besides the actual CPI dynamics, we still believe that higher wages are not only about higher growth, but also inflation has to play a role, and therefore, the demand and inflation normalization should bring unit labor costs back to normal as well with around a 3% inflation target increase", - TBC Capital notes.
According to the publication, in fact, TBC Capital thinks if not in March, then in the second quarter, the first GEL rate cut seems plausible. This view may be challenged also due to recently elevated uncertainties in the international markets due to the fragilities in the banking system, though in this regard, TBC Capital also notes that one of the outcomes has been a lower USD 10-year benchmark yield itself being positive for the GEL as well as lower oil prices supporting the disinflationary outlook.
