Macro Update – Georgia

FX Market Back in Surplus in April-May; Deal to End Middle East War in Sight

• First of all, congratulations from our team on Georgia’s Independence Day on May 26;
   

• Amid reports of an imminent deal between the US and Iran, we’d like to reiterate that we assess the overall impact of the conflict on Georgia’s economic growth as broadly neutral, or, over the medium term, even slightly positive, considering potential migration flows;
   

• As for local developments, it appears that the foreign currency surplus on Georgia’s FX market has restored in April-May, in line with our updated baseline;
   

• Higher net FX inflows have been driven by further narrowing of the goods trade deficit in April, evidently supported by gradual recovery in tourism revenues in May;
   

• Consequently, the NBG bought USD 333 million in April, after a net sale of USD 16 million in March, with May purchases expected to be even higher;
   

• Importantly, the surplus also supports FX deposit expansion, with knock-on implications for the banking system and the broader economy – something that deserves a separate note;
   

• We lower the USD/GEL forecast to 2.65 from 2.70 previously, as our “three pillars” approach now implies a GEL-positive balance;
   

• Regarding inflation, we maintain our end-year projection unchanged at 6.0%.