Georgia to Face Three Afflictions of Global Recession
17 November, 2011
Georgia to Face Three Afflictions of Global Recession

Global financial crisis may affect Georgia through three sources as trade channels, investments inflow and remittances, Edward Gardner, Resident Representative of International Monetary Fund (IMF) in Georgia, made a forecast on November 9, 2011  in frames of presentation event of October Regional Outlook 2011.

The entire world expects the second tide of economic recession against the backdrop of the underway EU loan crisis and Georgia is supposed to be afflicted in three ways. Trade turnover may reduce as countries will be

cutting their expenses down. The second source is inflow of Foreign Direct Investments (FDIs). If foreign investors find not apt to invest in Georgia at the moment then the impact of the crisis will be obvious.

Investments inflow in the second quarter of this year accounting for USD 203 million that means a 2.4% drop compared to the similar period of 2010, lays ground to pessimistic projections that Georgian investment inflow will be much behind the forecasted USD 850 million this year just like the past year forecast.

The third possible affliction is cutting down remittance channel. The biggest inflow of remittances comes from Russia and Greece to Georgia. Situation in Russia is stabilized, but Greece still faces difficulties.

Irakli Kovzanadze, an economic analyst, believes the remittance inflow that stands at USD 950 million this year will increase by 12-14% next year that will facilitate to stabilize situation in Georgia and offset expected drop in FDIs.

He expects no serious impact on Georgia unless situation in EU aggravates to dramatic level.

Macroeconomic data of Georgia makes him to feel safe: inflation rate dropped under targeted 6%, foreign loan and budgetary deficit share against GDP cut 40% and 3.5% respectively, export grew by 22% - all indictors point at stable growth of region next year. Besides, International Financial Institutions (IFIs) still support Georgia through loans.

“Georgia faced double effect in 2008 when the global financial crisis impact was aggravated by August war however the USD 4. 5 billion of international support helped Georgia to bailout and we have positive growth for the second consecutive year. However, if dramatic scenario develops in Europe the impact will be much deeper on Georgia than in 2008,” Kovzanadze said.

According to Gardner, Georgian economic growth projection stands at 5.5% for the next year and although data of Georgia foreign debt and budgetary deficit respective to GDP is not alarming [Georgia has an advantageous condition respective to other countries as far as bigger part of its foreign debt is taken from IFIs and the country does not depend on any country’s market] Georgian government should work on reducing these macroeconomic data.

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