Market overview

Georgia

Economic growth stronger than expected

Economic activity accelerated in 2Q 2024, with real GDP increasing by 9.5%, following 7.5% growth in 2023 and 8.4% in 1Q 2024. One important driver of this growth has been tourism. Tourist revenues (excluding Russia, Ukraine and Belarus) increased by 13.8% YoY in 2Q 2024, while overall tourism including the migration impact, as estimated by the NBG, grew by 8.1%, given that migrants are gradually being counted as residents by the central bank and hence excluded from the tourism sector. Another positive driver has been remittances, which, according to the balance of payments (BOP) data increased by 14.9%¹ YoY in 1Q 2024 and by 16.2% in 2Q 2024, based on estimates.

On the other hand, the moderation in external sector activity continued in 2Q 2024, negatively affected by lower international commodity prices and reduced motor car re-exports, while domestic exports performed slightly better with a noticable recovery in ferro-alloys. Total exports of goods denominated in US dollars decreased by 4.4% YoY in 2Q 2024, with domestic exports reducing by 1.2%, while imports grew by 1.9% compared to the previous year. FDI in 1Q 2024 decreased by 64.5% YoY, however, this was primarily due to the base effect of one large transaction in the manufacturing sector last year.

Fiscal consolidation continues in 2Q

The government remains focused on fiscal consolidation by reducing the budget deficit relative to GDP. Following a sizable surplus in 1Q 2024, the cumulative budget balance² stood at 0.6% of GDP as of half year 2024. The government targets 2.5% deficit for the full year, similar to 2023.

Credit growth remains strong

Another driver of strong economic growth, bank credit growth remains very robust, increasing from 17.2% YoY as of March 2024 to 17.7% as of June 2024, at constant exchange rates³. At the same time, as low and stable inflation persisted, YoY growth in real credit also remained high at 15.2%. Credit growth remains stronger for legal entities, increasing by 20.5% YoY, while lending to individuals was up by 15.3% in 1Q 2024. The gradual dedollarization of bank lending continues, with the share of FX loans slightly decreasing to 44.4% at the end of 2Q 2024, down from 45.0% at the end of 1Q 2024.

The GEL recovers after a brief weakening, while still low inflation slowly approaches the NBG target

After remaining stable throughout the first quarter and April 2024, worsened sentiments drove a slight GEL depreciation in May and June, with the USD/GEL exchange rate increasing from 2.7 at the end of March to 2.81 at the end of June 2024. However, while the NBG sold around USD 220 million on the FX market in May and June to curb excess volatility, the GEL also remained supported by strong foreign currency inflows, resulting in improved sentiments and the GEL returning to 2.7 GEL per USD level in mid-July.

CPI inflation is gradually approaching the NBG’s 3% target, standing at 2.2% YoY in June, with relative acceleration evident in domestic and service inflation measures. Nevertheless, still low though increasing overall inflation led the NBG to deliver only one 25 pp rate cut in the second quarter, reducing the monetary policy rate (MPR) to 8.0%.

Uzbekistan

Continued strong economic performance

Strong expansion in economic activity was also evident in Uzbekistan, with 6.6% real GDP growth in 2Q 2024, following 6.2% growth in 1Q 2024. As for external trade, exports of goods in 2Q decreased by 8.8%⁴ YoY due to high base effect of gold exports, while imports of goods increased by 15.1% boosted by higher energy imports. Retail credit growth continued to decelerate, driven by cooling growth in non-mortgage loans, although it still remained robust at 30%⁴ YoY at the end of March, with mortgage credit expanding by 21% and non-mortgage credit by 36%.

Annual inflation in Uzbekistan increased from 8.0%⁴ in March to 10.6% in June 2024, while the CBU kept its monetary policy rate unchanged at 14.0%. The UZS stood at 12,555⁴ relative to the USD at the end of June 2024, appreciating by around 0.5% in 2Q 2024, supported by slower credit growth, the CBU’s tight stance to bring inflation down and higher gold prices.

Upgrading economic growth forecast

Given the strong start to 2024 and even stronger second quarter, we recently upgraded our forecast for real GDP growth in Georgia to 7.4% (from 6.4%), while our projection for Uzbekistan now stands at 6.1% (instead of 5.6%).

More information on the Georgian economy and financial sector can be found at www.tbccapital.ge.

 _{¹ Remittances from Russia are adjusted for double counting with tourism inflows and other similar effects, based on TBC Capital estimates.}

 _{² Per IMF program definition.}

 _{³ Based on data published by NBG and FX-adjusted by TBC, based on Dec-2023 end of period exchange rate.}

 _{⁴ Based on data published by Uzstat and CBU}

_{Sources: GeoStat; NBG; IMF,  Rating Agencies}

¹ _{at PPP, current prices, TBC Capital estimates}

² _{IBP, Open Budget Survey 2023}

³ _{#48 globally; World Judiciary Project, Rule of Law Index 2023}

⁴ _{World Bank, Doing Business Report 2020}

⁵ _{Fraser Institute, Economic Freedom of the World 2023 Annual Report}

⁶ _{#49 in the world; Transparency International, Corruption Perception Index 2023}