The FINANCIAL — Trends deterring economic development are being detected in the Georgian economy according to a recent macroeconomic report done by ISET.
The FINANCIAL — Trends deterring economic development are being detected in the Georgian economy according to a recent macroeconomic report done by ISET. There is reduced demand for money, zero inflation, a reduction of deposits and a rise of dollarization. Apart from these negative results, some positive tendencies have occurred as well including loans issued to sectors of the economy, indexes of customers’ trust and bank liquidity.
Consumer prices remained stable in October. The rate of inflation was 0.0 percent and therefore prices maintained their level. The average rate of prices practically equalled the prices of October, 2011. Prices of food, soft drinks and clothing were reduced. This fact was balanced by increased prices of hotel rooms, cafes, restaurants and preventive medical care. It is this balance that is responsible for the zero inflation in Georgia at the moment.
“Zero inflation means stability of prices which in general is not good for the economy,” said Giorgi Bakradze, Advisor of NBG President and Senior Analyst at ISET. “It may cause a serious slowdown of economic activities. But at this stage, talk about the danger of zero inflation is far from the reality.”
The monetary sector was marked by a reduced demand for money. “Reduction of monetary aggregates in a short period is related to slow growth of GDP and a decrease of inflation,” This could be explained by expectations linked to political uncertainty. From my point of view, this trend won’t continue due to the specifics of the New Year. Demand for money will grow and accordingly we should wait for a rise of monetary aggregates as well as economic activities.”
Growth of VAT payers’ turnover reached an unprecedented low margin in October 2012. Use of electricity decreased significantly in this period as well.
Slowdown of VAT turnover in agriculture started in the second half of 2012 and came to 3 percent. In contrast VAT flow in the industrial sectors grew by 14 percent and this trend is set to continue.
“The reduction of VAT payers’ turnover and electricity use means that economic activities slowed down in certain periods,” Bakradze explained. At the same time, decreased use of electricity may be related to the huge strikes in different economic sectors.”
Dollarization recently increased by 1.7 percent for banks and the non banking dollarization rate – by 1.9 percent. Interest rates for loans increased by 0.24 percent and for deposits – decreased by 0.42 percent. The total volume of loans totalled GEL 8.25 billion in October. 57 percent of the whole amount was issued for economic sectors, while 43 percent was given to households. The biggest shares of loans were issued in trade (52 percent), industry (27 percent) and building (8 percent) sectors.
As for the foreign sector, the Georgian economy remains dependent on import. Negative trade balance is financed by investments and transfers. Export decreased slightly – by 0.5 percent – in October compared to the same period of the previous year, and import – by 2 percent. Net export experienced 4 percent growth. The main trade partners of Georgia at the moment are Turkey (15 percent), Azerbaijan (11 percent) and Ukraine (7 percent).
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