Tbilisi, Georgia — TBC Capital has published its latest macroeconomic update, revising key forecasts for Georgia. The report points to stronger economic growth, higher inflation expectations, and a broadly stable exchange rate for the Georgian lari.
A ceasefire agreement between the United States and Iran is set to expire on Wednesday. While another round of negotiations is scheduled for today, recent developments have cast uncertainty over whether the meeting will take place.
Against this backdrop, sentiment in global markets remains volatile. Following initial announcements regarding the reopening of the Strait of Hormuz, oil prices dropped by 10%. However, trading resumed on Monday with prices rebounding to around $95 per barrel. Notably, by several measures, the effective price of physical oil remains approximately $30 higher. Meanwhile, despite a slight strengthening yesterday, the US dollar has effectively returned to its pre-escalation level against both the euro and major trading partners. In line with our forecasts, this suggests that medium- and long-term fundamentals influencing the EUR/USD pair remain largely unchanged.
Taking into account both domestic and external trends, TBC Capital has revised its 2026 economic growth forecast for Georgia upward from 4.5% to 6.1%. The revision reflects several key factors:
- The Middle East conflict is expected to be relatively short-lived. While tourism may face negative effects, these are likely to be partially offset by stronger exports of goods, potential migration-related inflows, and increased demand from oil-exporting countries.
- Preliminary estimates from the National Statistics Office indicate that February’s economic growth exceeded expectations.
- A key upward driver is the lower likelihood of a near-term resolution to the war in Ukraine. As a result, potential post-war outflows of foreign currency are expected to be delayed, supporting higher growth in Georgia.
Recent data show that resident non-cash spending in March and the first half of April slightly exceeded February levels. However, non-resident spending — a key proxy for tourism revenues — has slowed significantly over the past two months. At the same time, flight volumes across Georgian airports have remained subdued since March, particularly in Batumi, although a modest increase has been observed in Tbilisi in recent days.
International visitor numbers to Georgia in the first quarter remained broadly unchanged year-on-year at 1.2 million (-0.2%). Given strong tourism revenues in January and February, this trend points to a noticeable decline in March. Geographically, strong growth in demand from Europe and the Americas largely offset declines from the Middle East, South Asia, and parts of Africa. However, the impact of ongoing developments on visitor flows from outside the region remains a key uncertainty, particularly if the conflict persists.
Despite the slowdown in the hospitality sector, Georgia’s net foreign currency inflows — combining trade, remittances, and tourism revenues — deteriorated only slightly in March. Goods exports rose by 24% year-on-year, supported by elevated commodity prices, while imports increased by 4.7%. Remittances grew by 10% annually, including a 25% increase in transfers from Israel, compared to 16% growth in January–February prior to the escalation in the Middle East.
The Georgian lari, which depreciated in early March due to deposit conversions, has slightly strengthened in April, in line with expectations. This indicates that foreign currency inflows from sources other than tourism remain robust. As inflationary pressures are expected to intensify throughout the year — even under a scenario of a relatively swift resolution to the conflict — this may support the lari in the short term. At the same time, a modest deterioration in the external balance is anticipated on an annual basis. Overall, the updated forecast suggests that the lari will remain close to its current level throughout the year.
Annual inflation slowed from 4.6% in February to 4.3% in March, largely due to base effects related to bread prices, which are expected to persist into April. Overall, last year’s increase in bread prices continues to contribute around 0.6 percentage points to inflation, an effect that will gradually fade over the year. However, seasonally adjusted annualized monthly inflation — which excludes these base effects — accelerated to 8.6%. The same measure for imported inflation reached 10.4%, driven by rising fuel prices, marking the highest level since October 2023.
Further increases in fuel prices in April, along with higher domestic electricity tariffs and rising global costs for food, fertilizers, and transportation, are expected to intensify inflationary pressures. TBC Capital now forecasts annual inflation to reach 5.6% by December, 2 percentage points higher than its January estimate. Under the baseline scenario, commodity prices are expected to gradually decline but remain above pre-conflict levels. Oil prices, for instance, are projected to reach approximately $80 per barrel by year-end.
Accordingly, the refinancing rate is expected to remain unchanged at 8% throughout the year, assuming no further escalation of the conflict in the Middle East.
The full report is available at.
