Georgian Economy Becomes Tardy
16 May, 2013
Georgian Economy Becomes Tardy
Economic slow-down in the first quarter of 2013 bespeaks that deflation process is aggravated and the Central Bank as well as Georgian administration are responsible for that.
The preliminary macroeconomic data of the first quarter of 2013 released by Geostat, Georgian statistics body, confirms the deflation and tardy economic activity that makes National Bank of Georgia (NBG) to presume that the targeted 6% of economic growth is unlikely this year. The inflow of Foreign Direct Investments (FDIs) dwindles, the foreign
trade shrunk and particularly affected the import that dropped by 8.5% compared to the similar period of 2012; prices went down as demand on credits and consumer goods is shy, thus inhibiting business activity. As a result, the inflation dropped to -1.7% in April and the NBG forecasts this data to dwindle furthermore in the coming four-six quarters. The figure is supposed to close the targeted 6% of inflation by end of the next year. To mitigate the process the NBG reduced monetary refinancing rate by 25 basis points to 4.25 percentage point on May 8, 2013. According to Giorgi Kadagidze, Governor of National Bank of Georgia, one of the key reasons to lower than expected economic growth is that business is still in the expectation regime. He expressed a hope the negative economic trend will improve in the second half of this year. Georgian economic analysts agree that business is still in the expectation regime due to the past parliamentary elections bringing shift of power in the country in October of 2012 that led to diarchy for the president of the country represents the opposition now and clashes incumbent authority quite openly. Situation is expected to be streamlined only after presidential elections scheduled in this coming October; however that never means that government and NBG must sit dwindling thumbs until then. Lia Eliava, a financial analyst, believes inadequate monetary and crediting policy of the NBG pushed the country in the deflation [that is more dangerous than inflation] in second half of 2011 and cannot handle the process since then.
“NBG names all reasons that led to economic slow-down except mentioning its own fault,” she said. “Central bank is responsible for stable prices in the country that it fails to maintain for a year and half already. There is a money famine in the country for the demand on consumer goods and credits is shrinking thus affecting the business activity and pushing prices down. The NBG instead of giving stimuli to money market is focused on pumping money from the economy all this period: it enhanced the requirement on capital reserves to commercial banks and increased sale of the state securities that deprived the economic off money.”
Soso Archvadze, an economic analyst, believes the ongoing deflation is not the NBG’s fault but is defined by aggravated recession of the global economy as well as by social-oriented policy of the authority. “Foreign trade makes 70% of Georgian GDP, so the global economic recession affects our economy and the NBG cannot help this. Yes, the business is in expectation regime but it is up to the government to make some incentives to revive the business activity. However authorities are more focused on implementation of social-oriented pre-election promises rather than to work out some taxation preferences. Eventually Georgian economy is sacrificed to the social policy,” he said.
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