Macro Update – Georgia

Commodities Dominate Growth, Inflows and Inflation

• Business sector growth in 1Q26 was led by industry, itself largely driven by petroleum products, basic metals and mining of metal ores, together accounting for roughly 87% of industrial output growth;
   

• These dynamics all but confirm our assertion that 1Q26 growth was largely commodity-export driven – at least as far as market GDP is concerned – in contrast with the past two years, when consumption was the dominant factor;
   

• Economic growth moderated to 6.2% in April from 9.1% in 1Q26, slightly below the pace implied by our full-year 7.4% baseline, though coincident indicators point to a notable acceleration in May;
   

• The FX market likely registered a sizeable surplus in May, supported by net FX inflows amid relative recovery in tourism, exports buoyed by still-elevated commodity prices, and steady remittances;
   

• Inflows were further boosted by foreign investors purchasing c. 65% of a GEL 400 million syndicated treasury bond issuance, with the share of non-resident holders of Georgian treasuries rising to 7.1%, the highest since 2022;
   

• Against this backdrop, gross reserve assets grew by USD 531 mn m/m to reach USD 7.0 bn by month-end, in line with our expectations, with May purchases expected to have reached a monthly record;
   

• Annual inflation edged down to 5.7% in May from 5.9% in April, in line with our forecast. That said, monthly inflation continued to rise in seasonally adjusted terms, though by a significantly smaller margin as compared to April;
   

• Inflation remains largely imported and oil-driven, while underlying indicators stayed relatively contained. We maintain our end-year inflation forecast at 6%, with the outlook for commodities central to projections;
   

• The USD/GEL forecast stands unchanged at 2.65 by the end of the year, though, at this stage, risks to our GEL stance appear skewed to the upside, given no unexpected resolution in the Russia-Ukraine and Middle East conflicts.