Outlook Improving On Russian Trade Renaissance
BMI View : An increase in Georgian-Russian trade will bolster real GDP growth in Georgia in 2014 and 2015, with a trade rapprochement with what was once Georgia's largest trading partner reducing net exports' drag on growth. In addition, the Georgian government's plan to construct a US$5bn deep-sea port would boost growth in the long term as the country positions itself as a regional transport hub.
The Georgian economy is set to continue on its path of moderate real GDP growth in 2014 and 2015, with the government's new sovereign wealth fund opening the economy to increased foreign investment and set to spur a reversal in the declines in gross fixed capital formation recorded in 2013. Q413 real GDP growth surprised to the upside, coming in at 6.9% year-on-year (y-o-y), up from just 1.4% y-o-y in the previous quarter, and lifting real GDP growth for 2013 to 3.1%, above our forecast for growth of 2.7%. While a breakdown of the composition of growth for the quarter is yet to come out, a not insignificant increase in consumer price inflation (0.6% y-o-y in November to 2.9% y-o-y in January) indicates that the primary driver of growth was an increase household consumption, although we do not believe this consumer boom will continue into 2014. We forecast real GDP growth of 4.4% in 2014, rising to 5.2% in 2015.
In addition to the establishment of a US$6bn sovereign wealth fund, that is set to gain a US$1bn investment from former Prime Minister and billionaire Bidzina Ivanishvili, the opening of a new US$5bn deep-water cargo port will assist in the government's efforts to establish Georgia as a regional logistics hub. The country is well placed to benefit from increased investment in shipping and freight, with Georgia ranked 72nd out of 191 countries in our Global Logistics Index. This places the country ahead of regional peers Armenia (108th) and Azerbaijan (129th), and 12th out of the 30 countries in Emerging Europe. With our Shipping and Freight team relatively bullish towards Georgia's emerging position as a transport and logistics hub between Central Asia, the Middle East and Europe, we believe the sector will become a valuable source of investment for Georgia in the medium-to long term.
|Q413 Growth Surprises To The Upside|
|Georgia - Real GDP Growth, % and Components by Expenditure, GELmn|