January trade in goods data strengthened considerably YoY as well as when adjusted for the COVID-19 base effect, while the remittance inflows continued the solid and stable dynamics. Likewise merchandise trade, tourism recovery also gained momentum compared to the previous months, indicating to a much stronger rebound in 2022 than 75%- 80% of 2019 inflows in the USD terms and, therefore, also stronger than 5.5-6.0% mainly tourism-led economic growth for FY 2022, which will likely start with the above 10% expansion in the first month. However, the regional geopolitical risks seem to remain as a main downside.

An estimated January balance of trade in goods, tourism and remittance inflows was positive, similar to December, however only when not adjusted for the seasonality. How to interpret seasonally adjusted and nonadjusted net inflows in terms of the impact on the GEL? The answer depends on the FX market participants perception of the GEL exchange rate seasonality. In particular, if a seasonal pattern is well-known, there should be no seasonality as the market participants will smooth the intra-year fluctuations by buying low and selling high. Although the USD/GEL market certainly is not as deep and as sophisticated as the EUR/USD one, we believe it is sufficiently developed with at least some participation of a relatively sophisticated domestic as well as international players and, therefore, while the seasonality of net inflows is expected to stay, we do not expect this also to be evidenced in the GEL seasonality. In fact, in recent years the GEL seasonality has increased since a) the share of tourism in the economy is higher and b) the GEL became more volatile. However, lately, apparently even before the pandemic, the GEL seasonality had a much less expressed pattern. Therefore, for the impact on the GEL, the seasonally adjusted inflows should also be considered. Overall, assuming that the GEL seasonality is not yet perfectly priced in, unlike non-residents’ investments in the GEL treasury securities, an estimated balance of trade in goods, tourism and remittance inflows in January seems to have been GEL supportive.

Last week, the Geostat also released 2021 Q4 employment data. In line with expectations, the labor market recovers with a time lag and a return to 2019 levels is expected this year or in the beginning of 2023 the latest, per our estimates. As for the real wages, while 2021 Q4 data is not yet released, we expect the real wages to surpass the 2019 levels in the first half of 2022.