Ongoing military activity in the Middle East continues to weigh on global markets, significantly reducing expectations of a near-term resolution to the conflict. In such an environment of heightened uncertainty, real-time data collection and analysis become critically important. A recent publication by TBC Capital addressed this topic, and today’s update provides additional insights based on the latest available data.
The impact of current developments on Georgia’s economy is assessed through several high-frequency indicators, including daily deposit conversion trends, traffic levels at Georgia’s international airports, Google search activity related to Georgia, recent non-cash spending patterns, fuel prices, and changes in global interest rates.
Since the previous update, trends in deposit conversions have shifted. Based on daily data, larization increased again last week, supporting the Georgian lari. Overall, the foreign exchange market appears broadly balanced at this stage. During the initial phase of the conflict escalation, worsening sentiment led to a sharp rise in conversions into foreign currency deposits, putting depreciation pressure on the lari against the US dollar. However, following this initial wave, dollarization first stabilized and then began to decline. As of March 18, it had returned to pre-conflict levels. As noted in prior analyses by TBC Capital, this factor can be as important—if not more so—than foreign currency inflows in determining exchange rate dynamics.
In contrast, total non-cash spending weakened in the following days of March after a strong start, particularly among non-residents. Spending with local cards, which had increased significantly at the beginning of the month, remained largely unchanged (seasonally adjusted) compared to the previous month as of March 19. Meanwhile, spending with foreign cards—an important proxy for tourism revenues—has clearly declined month-on-month across both hospitality and broader categories.
Slowing activity in the hospitality sector is also reflected in reduced Google search interest related to Georgia and lower flight volumes at the country’s airports, although Tbilisi shows relatively stronger dynamics. At Tbilisi International Airport, total flight activity (arrivals and departures) has been increasing since March 9, although it remains below pre-conflict levels. The gap between scheduled and actual flights has narrowed in the second half of March, indicating a reduction in cancellations.
This trend is not observed at Batumi International Airport, which is more dependent on demand from the Middle East. In March, flight volumes lag not only 2025 levels but also those of 2024, with no clear signs of recovery, including in terms of cancellations.
As for Kutaisi International Airport, no significant changes in flight volumes have been observed as a result of recent developments. However, traffic has declined substantially since November 2025, likely linked to the closure of Wizz Air’s Vienna base and the cancellation of related routes.
At the same time, Google search frequency related to Georgia from Israel, United Arab Emirates, and Saudi Arabia has remained consistently low since February 28. As highlighted in earlier research by TBC Capital, this indicator proved highly effective in tracking both the initial decline and subsequent recovery of tourist flows from Israel in real time last year.
Although precise figures remain limited, available data suggest growing demand from the Middle East in Georgia’s real estate market in recent months, pointing to potential migration-related effects.
On global markets, rising oil prices are already translating into higher fuel costs in Georgia. In some cases, prices have increased by up to 10% compared to the beginning of the month. Since February 28, global oil prices have risen by approximately 45%, indicating further upward pressure on domestic fuel prices. As noted in previous publications by TBC Capital, this has broader implications, as higher fuel costs affect not only direct expenses but also intermediate costs, including transportation and fertilizers. At the same time, these factors may support increased exports of Georgian commodities.
Amid current developments, inflation expectations have risen significantly worldwide. This implies tighter monetary policy and higher interest rates. According to the latest market expectations, the Federal Reserve System may no longer be able to cut rates this year, whereas prior to February 28, the baseline scenario anticipated a 50 basis point reduction. In the case of the Bank of England and the European Central Bank, rate hikes are now also being considered.
These shifting dynamics are naturally affecting Georgia as well. Rising inflation risks and widening interest rate differentials reduce the likelihood of monetary easing. In the previous update, under the assumption that active military operations would end within approximately one month, the probability had increased that the National Bank of Georgia would lower its policy rate by 25 basis points to 7.75% by year-end. Without meaningful de-escalation in the near term, even a modest rate cut may become less likely.
Overall, macroeconomic developments remain broadly in line with expectations outlined in the March 2 publication. Based on the latest information, TBC Capital continues to project economic growth of around 4.5% in 2026. While earlier assumptions included a certain probability of the end of the conflict in Ukraine, that likelihood has now declined. The postponement of potential capital outflows following a resolution supports growth, but escalation in the Middle East represents a new negative shock. Despite stronger-than-expected growth in January, non-cash spending data for February and March indicate a notable slowdown.
Regarding the Georgian lari, the assessment remains neutral. Prior to the escalation in the Middle East, the baseline scenario projected slight depreciation by the end of 2026, partly reflecting expectations around the Ukraine conflict. The reduced likelihood of resolution in Ukraine is now offset by increased risks stemming from the Middle East. Additionally, after significant improvement in 2025, some deterioration in the external balance remains the baseline scenario for 2026.
Finally, amid ongoing uncertainty, the question of optimal borrowing currency remains highly relevant. While concise summaries are not typically favored in analytical work, TBC Capital plans to publish a one-page guide in the coming days, responding to strong demand and aiming to support more effective implementation of optimal currency strategies in financing decisions.
Full report available here.
