Tbilisi, Georgia – More than two weeks after the renewed escalation in the Middle East, inflation risks have increased significantly, reinforcing the case for keeping interest rates elevated for longer, according to TBC Capital’s latest macroeconomic update. At the same time, the latest economic indicators do not point to a deterioration in tourism, domestic spending, foreign currency inflows, or the exchange rate. As a result, TBC Capital has revised its year-end inflation forecast upward while maintaining its baseline projections for economic growth and the Georgian lari.
As noted by TBC Capital in June, financial markets initially responded positively to signs of de-escalation, leading to a sharp decline in global commodity prices. However, market sentiment has since reversed. Similar to its approach in March, TBC Capital continues to monitor high-frequency economic indicators, allowing for a real-time assessment of the conflict’s impact on Georgia’s economy.
The most visible change has been in global commodity markets. Brent crude oil prices have risen from USD 72 per barrel on July 7 to around USD 100 by July 24. Prices for key agricultural commodities, including wheat and soybeans, have also increased. Additional risks stem from the possibility of disruptions to regional maritime shipping routes, which could place further upward pressure on oil prices.
According to TBC Capital, oil and food prices remain the most significant drivers of Georgia’s short-term inflation outlook. Together, these categories accounted for more than half of June’s annual inflation rate of 5.8%, contributing 3.1 percentage points. Historically, the correlation between international and domestic prices has been particularly strong for fuel, and the effects of the recent escalation are already becoming visible in the local market. After a brief decline earlier this month, gasoline prices began rising again across major retail chains from July 20. Meanwhile, higher global food prices are expected to feed into domestic inflation over a longer period, with the pace depending partly on local supply conditions.
In light of these developments, TBC Capital has raised its year-end 2026 inflation forecast from 5.1% to 6.0%. The revised forecast effectively returns to the previous baseline scenario, which assumed a more prolonged regional conflict and Brent crude stabilizing at USD 80–85 per barrel by December. Since this scenario still assumes some moderation in oil prices during the remainder of the year, inflation could exceed current projections if oil prices remain elevated or continue rising. Current market expectations also broadly reflect a similar trajectory, although commodity markets remain highly volatile.
Higher commodity prices are also supporting Georgia’s export performance. Merchandise exports increased by 20% year-on-year during January–June, driven primarily by higher exports of oil products, gold, ferroalloys, and copper.
Unlike the slowdown observed in March and April, however, the tourism sector has so far shown no signs of renewed weakness. Tourism revenues declined by 3.8% year-on-year in the second quarter, largely due to weaker performance in April. Data on airline traffic and non-cash spending indicate that tourism activity recovered in both May and June. July data are also encouraging: since July 13, the number of flights to Georgian airports has increased, while non-resident card spending—one of TBC Capital’s key indicators for forecasting tourism revenues—accelerated both on a monthly and annual basis as of July 19.
Supported by stronger tourism revenues, robust merchandise exports, and growing remittance inflows, while imports remain relatively subdued, Georgia’s net foreign currency inflows have improved compared with the first quarter. TBC Capital notes that despite the conflict in the Middle East, Georgia’s seasonally adjusted current account balance, excluding reinvested earnings, remained in surplus during the first quarter. Unless the regional conflict escalates significantly further, no substantial deterioration in foreign currency inflows is currently expected.
Domestic economic activity also remains resilient. Resident non-cash spending, as of July 19, has increased both compared with the previous month and with July 2025. Consequently, overall non-cash spending—one of the key indicators used in TBC Capital’s growth assessment—continues to expand. As a result, the firm’s 2026 economic growth forecast remains unchanged at 7.4%.
The higher inflation outlook strengthens the argument for maintaining elevated interest rates for longer. At the same time, TBC Capital notes that underlying inflation indicators suggest only moderate price pressures, while monetary policy decisions should be guided primarily by the medium-term inflation outlook rather than short-term fluctuations. Accordingly, the baseline scenario continues to assume that the National Bank of Georgia will maintain its policy rate at 8.25% through the end of the year. However, a further increase to 8.50% cannot be ruled out, particularly given that the National Bank raised its policy rate by 25 basis points on May 6 under similar conditions. The central bank’s next monetary policy decision is scheduled for July 29.
TBC Capital also maintains its exchange rate forecast, expecting the Georgian lari to trade within a range of GEL 2.60–2.65 per US dollar by year-end. Nevertheless, recent trends appear to favor an even stronger lari. Foreign currency inflows remain robust, while the scope for interest rate cuts has narrowed further. Unlike the market reaction observed in March, the latest escalation has not triggered a wave of deposit conversions into foreign currency, limiting pressure on the exchange rate. As of July 21, the share of lari-denominated deposits had increased compared with the period before the escalation.
The full publication is available on the TBC Capital (Hyperlink: https://tbccapital.ge/ge/publications/all-publications/singleview/30007619-macro-update-georgia) website.
