Moody’s: Georgia’s real economic growth will average 3% in 2016

Global rating agency Moody’s forecasts Georgia’s real economic growth will average three percent in 2016, according to the local weekly English-language newspaper The FINANCIAL.

AVP-Analyst at Moody’s Ernest Sergenti told The FINANCIAL Georgia’s real economic growth was predicted to average 4.8 percent between 2010 and 2019.

Meanwhile, he said with low domestic savings, Georgia’s economic growth model will remain heavily dependent on external financing. In his words Georgia faced the challenge of ensuring healthy economic growth prospects, while simultaneously reducing external vulnerabilities.

Georgia is characterised by high and volatile growth, which we estimate will average 4.8 percent between 2010 and 2019, relatively low income per capita ($7,653 USD in 2014 on a purchasing power parity basis) and a relatively small economy ($17 billion USD in 2014),” said Sergenti.

Moreover, Georgia’s economic growth model is heavily dependent on external financing for investment, since domestic savings are low, at 13.7 percent of GDP in 2014. This is also reflected in the country’s large current account deficit. As such, Georgia faces the challenge of ensuring healthy economic growth prospects, while simultaneously reducing external vulnerabilities,” Sergenti added.

While talking about Georgia’s economy Sergenti said economic slowdown last year was mainly caused by slowdown in Georgia’s major trading partners.

In the first half of 2015, growth fell to 2.6 percent, down from 4.8 percent for all of 2014. This was mainly due to the slowdown in Georgia’s major trading partners, with remittances down 31.8 percent year-over-year in July and merchandise exports down 24 percent over the same period,” said Sergenti.

He said despite the fact that Georgia’s trade links with Russia had declined greatly since the 2008 conflict with Russia, they were still substantial and have been increasing since 2013.

For instance, in 2014, Russia accounted for 10 percent of Georgia’s total merchandise exports, up from 6.5 percent in 2013; and, in July, Russia accounted for 46 percent of total remittance flows to Georgia. Georgia is therefore also vulnerable to the economic downturn in Russia,” Sergenti said.

However, as Sergenti noted, the commencement of the Association Agreement (AA) and the Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union in September 2014 was supportive of the rating because it improved Georgia’s medium-term economic and institutional strength prospects.

As he added, the country was also modernising its transportation infrastructure and was undertaking reforms that would enhance its competitiveness, productivity, and export volumes.