EBRD: Georgia's GDP will fall by 5.5 % in 2020

By Natalia Kochiashvili

Thursday, May 14

Economies across the regions of the EBRD may contract on average by 3.5% this year, because of the impact of the coronavirus, with a rebound of 4.8% possible in 2021.

Loss of tourism receipts will be a significant blow to the Georgian economy.

The European Bank for Reconstruction and Development (EBRD) has released a new macroeconomic review on 13th of May. The bank forecasts a 5.5% economic decline in Georgia in 2020. At the moment, this is the most pessimistic forecast for the Georgian economy, as both the IMF and the National Bank of Georgia (NBG) are considering a 4% reduction in the economy's forecast.

At the same time, by 2021, the EBRD expects economic activity to improve in the country and grow by 5.5%.

The sharp drop in tourist flow is the main reason for the EBRD's decline in Georgia's growth. The report notes that the hospitality sector will be severely hit due to travel bans amid coronavirus fears.

“With tourism receipts normally amounting to nearly one-fifth of GDP, the negative impact will be widespread across many sectors. We expect the economy to shrink by 5.5 per cent in 2020 before recovering by 5.5 per cent in 2021,” said the report.

Revenues from tourism account for almost one-fifth of the country's GDP, 20%.

"If social distancing remains in place for much longer than expected, the recession may deepen further and fail to reach the level of production per capita in 2019 over the years," the document read.

The EBRD says that Georgian economic growth amounted to 5.1% in 2019. It notes that Georgia had a record number of 7.7 million international visitors last year.

According to the bank, Georgia's economy will shrink by an average of 3.5%, compared to 1.2 % in Central Asia.

The Georgian government estimates that about 350,000 jobs will be lost in the country due to coronavirus. People employed in the agricultural sector are not considered in this number. Inflation is also named as a major problem for the country.

As for other countries in the South Caucasus, Azerbaijan and Armenia, a document published by the EBRD says that, Armenia's economic downturn forecast for 2020 is 3.5%, for Azerbaijan 3%. The EBRD forecasts an economic rebound of 5.5 per cent in Armenia and recovery of 3 per cent in Azerbaijan by 2021. As for Ukraine and Russia, the economy is predicted to shrink by 4.5%.

Meanwhile, the International Monetary Fund (IMF) says that economic growth in Georgia will reach 3% in 2021, while it will be reduced by 4% in 2020.

The World Bank projects Georgian economic growth to slow sharply this year, coming close to 0% in 2020 due to the challenging external environment and impacts of the COVID-19 pandemic.

International Investment Bank Renaissance Capital also released its updated macroeconomic forecast for Georgia. According to the document, the bank forecasts a recession in Georgia in 2020, however, the scale of the recession is relatively smaller than the IMF predicts, and it is -2.9% instead of -4%.

From a sectoral point of view, the focus of Renaissance Capital’s research in this review is also the tourism sector. The bank writes that given that Georgia will be open to international visitors from July 1st, the country will be able to maintain at least 50% of the number of visitors in the second half of 2020, compared to the previous year.

Document reads that in March 2020, international revenues were already reduced by 60% due to quarantine measures, and in April-June, it will actually be equal to 0, however. If the sector is opened from July 1st, the country will have the opportunity to maintain the flow during the peak of the season.

According to the basic scenario prepared by Renaissance Capital, at least less than half of the tourist visits to the country will be restored during the second half of 2020. At the same time, the share of local tourists in the sector will increase. “Overall, the measures announced by the government should help reduce the sector's losses and keep the country's GDP decline at about 2.9%,” the Renaissance Capital said in a statement.

Another issue related to the bank's research is the exchange rate of the Georgian national currency. Renaissance Capital writes that according to the basic scenario, against the US dollar, the Georgian GEL should remain at the 3.2 mark until the end of the year.

The loss, which will be related to the decline in exports and exports of services, is expected to be in the range of $1 billion, and in terms of remittances in the range of $500 million. This will be offset by declining imports from Georgia, as well as lower oil prices, claims the statement. The decline in foreign exchange inflows will be offset by international financial institutions, which plan to issue a $3 billion package to help Georgia.