The GEL – Higher Net Inflows, Weaker USD/EUR, Broadly Neutral Domestic Component, - TBC Capital published weekly update from the Chief Economist.
"January rapid economic growth estimate came in at 11.1%, once again rather higher than our expectations;
Spending on consumer durables through TBC channels declined further in February, indicating that sentiments have not recovered yet;
Similarly, net FX purchases and deposit conversions moderated in February, although normalization at relatively higher levels signals that the market remains wary;
Combining net inflows, global USD dynamics, even before recent weakening, and sentiments, our short-run equilibrium USD/GEL estimate strengthened to 2.78 as of January 2025;
In light of recent USD weakening, which, coupled with a strong EUR, provides an upside to the GEL outlook, we reiterate our recommendation to avoid short-term overreaction within the GEL/EUR/USD and the UZS strategy;
In this regard, unlike previous episodes of procyclical behaviour, lately, when the EUR was weaker, the share of EUR in corporate FX loans has been declining, a welcome development per our framework considering our estimates of EUR misalignment, even when adjusted for the relative riskiness for Georgia;
Last but not least, annual inflation without one-offs approached the 3% target in February, with price changes in monthly terms indicating relative acceleration, an important development to keep an eye on", - the document reads.
