Georgia’s economy expanded by 5.8% y/y in Aug-23, in line with our expectations. Cumulatively, real growth came in at 7.0% y/y in 8M23. The growth in August was driven primarily by the financial, construction, manufacturing and trade sectors. In contrast, the real estate, transportation & storage and ICT sectors contracted during the same period. We expect GDP growth at 6.8% for the full year 2023.
The Current Account (CA) deficit came in at 4.9% of GDP, up from 4.6% in 2Q22, mainly due to an increased negative income balance caused by a surge in reinvestments. The merchandize trade deficit, traditionally the major contributor to deficit creation, increased by 13.0% y/y to US$ 1.2bn, as exports increased by 15.3% y/y and imports were up 14.4% y/y. Meanwhile, positive services balance grew significantly by 49.4% y/y to US$ 788.9mn, driven by ICT (+138.9% y/y to US$ 168.4mn) and tourism revenues (+34.8% y/y to US$ 1.0bn). Net FDI remained the key funding source for the CA deficit, accounting for 6.3% of GDP in 2Q23. Notably, the NBG revised 1Q23 and 2022 CA deficit figures upwards to 5.9% of GDP (up from previous estimate of 3.2%) and 4.6% of GDP (up from 4.0%), respectively. Overall, in 1H23, CA deficit came in at 5.3% of GDP, down from 8.6% of GDP in 1H22. We forecast CA deficit at 4.5% of GDP in 2023, up from our previous forecast of 3.8%, reflecting revisions in official statistics for 1Q23 and 2022.
The government has submitted to the Parliament an initial draft of 2024 state budget, which sets economic growth at 5.2% and GDP deflator at 3.0% for 2024. Fiscal deficit planned at 2.5% of GDP for 2024 at consolidated level, representing an improvement compared to 2023E. Notably, tax revenues expected to increase by 9.4% y/y to 24.9% of GDP and privatization revenues are set at GEL 350mn. Total expenditures for 2024 budgeted at 30.5% of GDP, with capex accounting for 7.6% of GDP, down from 8.6% in 2023E. Total public debt to GDP is projected at 38.2% (2023E 38.4%), reflecting reduced share of external debt (2024F 26.6% of GDP vs. 2023E 27.7%) and an increased share of domestic debt (2024F 11.7% of GDP vs. 2023E 10.7%).