High Investment, Increased Exports Pave the Way for Growth in Georgia

High Investment, Increased Exports Pave the Way for Growth in Georgia

High Investment, Increased Exports Pave the Way for Growth in Georgia

The FINANCIAL -- Economic growth in Georgia is forecast to accelerate from an estimated 2.7 percent in 2016 to 3.5 percent in 2017, led by external demand and public investment.

According to Trade in Transition, the latest Economic Update for Europe and Central Asia (ECA), launched today in Tbilisi, this growth is expected to continue into the future, forecast at 4.0 percent in 2018 and 4.5 percent in 2019. High investment, a recovery in export markets, and an uptick in oil prices, leading to growth in many of the country’s trading partners, are all contributing to this accelerated growth.

This growth trend is also expected in the ECA region as a whole, following the stabilization of oil prices, benefitting the eastern half of the region, and a continued recovery in the western half of the region. Growth is forecast at 1.9 percent for 2017, up 0.3 percentage points from an earlier forecast in October, and will remain a stable 1.8 percent in 2018.

The forecast for the South Caucasus region has been adjusted down from the earlier forecast of 2.2 percent in 2017, mostly on the account of large fiscal adjustments in Armenia and Azerbaijan: the latest figures indicate no growth in 2017 and modest growth of 1.6 percent in 2018. Armenia is expected to grow at 2.7 percent in 2017, while Azerbaijan, which continues to suffer from the oil price shock, is expected to contract by 1.4 percent.

“After a period of uncertainty Georgia’s macroeconomic fundamentals are back on track contributing to an improved economic performance, says Mercy Tembon, World Bank Regional Director for the South Caucasus. Looking forward, Georgia has the potential to sustain faster economic growth as it integrates successfully with the rest of the world with higher exports, supported by innovation and knowledge.”

The report also notes that policies focused on improving trade in the region are crucial for building on this modest growth. Trade has been vital in improving the lives of people in ECA. From the transition period in the 1990s to today, trade has promoted growth, created jobs, and granted access to various goods and services for millions of people.

“The sharp increase in international trade over the last three decades has dramatically transformed the region. It made the transition of Central and Eastern Europe into market economies possible, and it was linked to the creation of the common market in the European Union,” says Hans Timmer, World Bank Chief Economist for Europe and Central Asia. “Trade has promoted innovation, and currently more people in the region participate in the labor market than ever before. However, international competition and new technologies have reduced job security. Countries must align their social protection systems with these new labor market realities, in order to help workers cope with the uncertainty.”

Overall, the region has been resilient to the ongoing global slowdown in trade, with trade volumes continuing to grow twice as fast as Gross Domestic Product (GDP). The current slowdown of China’s exports has been the main driver of the global trade slowdown, but the reduced competitiveness of China’s exports has actually opened up new opportunities for ECA. According to the report, countries can best take advantage of these opportunities by embracing a new growth strategy focusing on these new job opportunities in sectors that are internationally competitive.

Three transitions are necessary to build on this strategy:

a continued shift to producing goods that can sell in international markets to drive a sustained shift from imports to exports;

a reorientation towards Asia, moving away from the intraregional trade that has defined ECA in recent decades; and

a shift away from goods toward services, such as tourism and software, where most future growth opportunities are.