Georgian economy stood still in May at 0% and the annual growth forecast dropped from targeted 6% to 4-4.5%. Sector pundits believe this is the result of incompetent policy of both the government and the central bank as well as incompetent management of business sector.
After revelation that Georgian economy stagnated in the past May, the National Bank of Georgia (NBG) reduced the country’s GDP growth forecast to 4% and explained economic slowdown by reduced trust of consumers as well as feeble activity of business and financial sectors. NBG accentuated that in spite of high liquidity level of banks the credit activity is low and predicted Georgian economy to go on 6-7% of growth by the second quarter of the next year. The NBG did not say however that the underway economic picture with slow business activity and weak crediting activity is a classic deflation rampant in the country for two years already and aggravating this year when the first quarter growth scarcely averaged to 1.9% in 2013. Standards & Poor’s, Fitch, European Bank for Reconstruction and Development (EBRD) and the International Monetary Fund (IMF) lowered this year’s economic growth forecast to Georgia to around 3-4% in May but Georgian government still hoped for targeted 6% unless the last revelation that Georgian economy got a frost bite. Financial sector pundits accuse NBG of inadequate monetary and crediting policy that rather instigates than alleviates deflation process. According to Lia Eliava, a financial analyst, 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. While 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 of money. Ditrikh Muller, a co-founder of Georgian Investments Group, believes the only way out is to let Georgian national currency rate to flow free gradually rather than hold its exchange rate artificially as the NBG does for years. On the other hand, he thinks the economic slowdown is a repercussion of the incompetent economic policy of the ex-powers boosting monopolies at the market, killing the competition and infringing property rights.