World Bank: Georgia’s economy to grow by 3.5% in 2017

11 May 2017

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By Mariam Papidze

Economic Editor

Agenda.ge,11 May 2017 Tbilisi,Georgia


The World Bank is moving its forecast up and saying the Georgian economy will grow by 3.5 percent in 2017, four percent in 2018 and 4.5 percent in 2019.

High investments and increased exports pave the way for growth in Georgia, says the World Bank’s Trade in Transition report, where the latest economic update for Europe and Central Asia (ECA) is introduced.

Furthermore, a recovery in export markets and an uptick in oil prices leading to growth in many of the country’s trading partners are all contributing to this accelerated growth, said the report.

At the beginning of this year the World Bank projected Georgia’s economy to experience 5.2 percent growth in 2017. In its annual report Global Economic Prospects, the World Bank Group further forecast Georgia’s economy to hit 5.3 percent growth in 2018 and five percent in 2019.

Later, due to the negative developments in the country the World Bank downgraded the forecast and projected the economy to grow less than three percent this year.

Mercy Tembon and Hans Timmer of the World Bank presented the new report today in Tbilisi. Photo by Agenda.ge.

However, due to the positive developments in the region and in the country, the World Bank still moved its forecast up and said the economy to grow by 3.5 percent in 2017.

Half a year ago we were very optimistic. In between half a year ago and this report we were even more pessimistic. We have forecast less than three percent for this year mainly because the numbers for the third quarter were rather weak in Georgia. Now we are moving the forecast up again because the numbers are very promising. We are looking forward in the coming years much more stable growth,” said Hans Timmer, chief economist for the Europe and ECA region of the World Bank.

While further explaining the reasons of pessimistic expectations, Timmer said: "What we have seen recently was really reaction to the big external shock. What normally happens after big shock is that either you have a sharp rebound or you have a much slower recovery. That dynamics are really unpredictable and are not easy to forecast. Going forward the situation is very different because you are no longer in very cyclical situation but you are entering the growth path that is driven by the structural factors, like job creation, for example”.

Hans Timmer suggested it was important to create more tradable jobs in Georgia. Photo by N. Alavidze/Agenda.ge.

World Bank Regional Director for the South Caucasus Mercy Tembon also believes that Georgia’s macroeconomic fundamentals "are back on track”.

After a period of uncertainty Georgia’s macroeconomic fundamentals are back on track contributing to an improved economic performance. Looking forward Georgia has the potential to sustain faster economic growth as it integrates successfully with the rest of the world with higher exports, supported by innovation and knowledge,” said Tembon.

Fiscal deficit will remain elevated at 4 percent of gross domestic product (GDP), unchanged from 2016, said the report.

Poverty is expected to decline modestly in 2017 as economic growth recovers and translates into higher labour income. The poverty rate is also projected to continue declining through 2018, reaching 26.8 percent (measured at $2.5/day), said the report.

With the Russian economy recovering in 2017 and an uptick in oil prices, growth in Georgia’s trading partners is likely to increase, rising Georgia’s export. Foreign Direct Investment (FDI) inflows, which largely originated from Azerbaijan and Turkey in 2016, remain resilient,” said the report.

The World Bank report said poverty is expected to decline modestly in 2017 as economic growth recovers and translates into higher labour income. Photo by N. Alavidze/Agenda.ge.

As the report continued, in outer years, growth prospects factor in improved economic ties with the European Union (EU). The downside risks arise primarily from a protected period of slowdown among Georgia’s trading partners.

Meanwhile, the report also highlighted some of the challenges Georgia could face in coming years. Key macroeconomic vulnerabilities faced by Georgia include risks to external and fiscal sustainability. Continued disturbance in some of Georgia’s main export markets and longer-term stagnation in the EU could further impact external performance.

Rural poverty risks remain high if agricultural productivity does not increase and non-agricultural employment opportunities do not continue to expand,” warns the report.

Timmer suggested it was important to create more tradable jobs.

Improving skill levels not only in Tbilisi but also in rural Georgia was one of the challenges for the country. Photo by N. Alavidze/Agenda.ge.

In terms of job opportunities Georgia has done many things right already. My experience yesterday was incredibly impressive when I visited Georgia’s Innovation and Technology Agency and saw how Georgia supports so many start-ups and innovative ideas”, he said.

Now the questions are how do you organise the education, labour market, how do you make sure that those start-ups enter markets across the border? Also the challenge for Georgia is to make sure that everybody participates in those opportunities. In Tbilisi the opportunities are there. Here you have people with good education, but it is not in the whole country. There are parts in the country where skill levels are much lower. I think there are huge opportunities in tourism, because tourism can reach in those areas and create new job opportunities,” Timmer said.

Overall, the report forecast better economic growth for the region and said trade volumes continuing to grow twice as fast as GDP.

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