Amid ongoing military developments in the Middle East, TBC Capital continues to assess the real-time impact on Georgia’s economy. The analysis tracks a range of indicators, including shifts in the probability of conflict resolution, deposit dollarization trends, flight frequency, Google search activity, non-cash spending, global commodity prices, interest rates, and risk premiums.
Sentiment across global markets remains volatile, characterized by brief periods of improvement followed by renewed deterioration—a pattern that has persisted in recent days.
At this stage, developments remain broadly consistent with the assessments outlined in TBC Capital’s March 2 publication. On the one hand, the impact on the Georgian lari has been largely neutral. On the other hand, economic growth is experiencing a moderate, albeit still negative, short-term effect, accompanied by accelerating inflation.
In March, resident non-cash spending remained largely stable on a monthly basis. However, a notable slowdown was observed in non-resident spending. This trend is also reflected in declining flight volumes—particularly at Batumi Airport—as well as reduced Google search activity related to Georgia. Meanwhile, the lari, which depreciated in early March due to worsening sentiment and increased conversion of deposits into foreign currency, has since rebounded to near pre-conflict levels. This recovery aligns with expectations, as deposit dollarization declined in the second half of the month and the foreign exchange market absorbed the escalation with sufficient liquidity.
Annual inflation reached 4.3% in March (8.6% in annualized monthly terms). According to preliminary forecasts by TBC Capital—to be refined as developments unfold—inflation is expected to exceed 5% by year-end. This outlook reflects both direct and indirect effects of rising oil prices and electricity tariffs, as well as increasing global costs for food, fertilizers, and transportation. At the same time, higher global prices may support the growth of Georgia’s commodity exports, despite more expensive oil imports. Additional upside factors include stronger demand from oil-exporting countries and the potential impact of migration flows.
According to Geostat, Georgia’s economy grew by 8.8% year-on-year in February. However, a slowdown is expected in March. Significant uncertainty remains regarding the timeline for the end of the wars in both the Middle East and Ukraine. While a partial delay in potential capital outflows supports the baseline growth scenario, the escalation in the Middle East represents a new negative shock. Notably, excluding reinvestments, the current account balance in 2025 was positive, in line with TBC Capital’s projections—marking the first time Georgia has received more income from the rest of the world than it has spent overall.
Finally, what do these developments imply for optimal currency financing strategies? According to TBC Capital (Hypelink: https://tbccapital.ge/en/publications/all-publications/singleview/30007460-macro-update-georgia), the current strengthening of the US dollar does not reflect changes in medium- or long-term fundamentals. As such, the recommendation outlined in last week’s summary remains unchanged.
The full publication is available at the following link.
