Real GDP growth will be slower in Georgia in 2015

Subject

Worsening economic prospects in 2015.

Significance

Georgia has already started to be affected by the substantial deterioration in Russia's economic performance and the steep depreciation of the ruble against major currencies, particularly in the final quarter of 2014. Russia became Georgia's third-most-important trading partner in 2014, and remittance flows from Russia are an important source of foreign exchange. Currencies in the Caucasus and Central Asia have faced depreciation pressures, with Turkmenistan forced to devalue its currency on January 1, followed by Azerbaijan on February 21.

Impacts

• Domestic demand will fall this year, as remittance flows weaken.
• The devaluation of Azerbaijan's manat in late February will have a negative impact on exports, as it is Georgia's top export market.
• If Western sanctions against Russia are not lifted in July, as expected, this will worsen the outlook for the Georgian economy.