Amid renewed escalation in the Middle East, TBC Capital has published a macroeconomic update assessing potential scenarios and their implications for Georgia’s economy.
As uncertainty dominates the global news cycle, the key questions remain: how might developments unfold, and what impact could they have on Georgia? TBC Capital provides a concise overview of the most significant macroeconomic factors at this stage.
Tourism and Foreign Currency Inflows in Focus
From today’s perspective, the tourism sector appears to be among the most exposed. Countries in the Middle East account for approximately 21% of Georgia’s total tourist arrivals. At the same time, potential spillover effects on visitor flows from other markets cannot be ruled out.
Importantly, the hospitality industry has recorded strong growth in recent months. A slowdown in growth — or even a slight contraction — differs materially from a significant decline in revenues. This distinction is crucial when assessing potential downside risks.
A similar dynamic applies to the foreign exchange market and overall FX supply. According to TBC Capital’s preliminary estimates, February was one of the strongest months on record for foreign currency purchases by the National Bank of Georgia (NBG), totaling approximately USD 420 million. Over the past year, the NBG’s FX purchases have reached around USD 2.9 billion.
Lari Depreciation Driven by Conversions
Despite strong FX inflows, the Georgian lari experienced moderate depreciation. According to TBC Capital, this was primarily driven by conversion activity. Historically, conversion flows have played a role at least as significant — and often more significant — than foreign currency inflows in determining exchange rate dynamics.
Should conversion-related pressures intensify, TBC Capital expects that the National Bank of Georgia may intervene in the FX market, consistent with past practice. Another supporting argument for potential intervention is inflationary pressure stemming from rising oil prices.
Overall, TBC Capital maintains a broadly neutral outlook on the lari exchange rate.
Economic Growth Outlook
In terms of economic growth, the expected impact is assessed as moderately negative, largely reflecting sentiment effects. Much will depend on how events unfold. It is worth recalling that last year Israeli citizens purchased more residential property in Georgia than Russian citizens. Similarly, the economic effects of the tragic events in Ukraine became visible only after a certain period.
International Context and U.S. Dollar Dynamics
From a practical standpoint, the behavior of the United States dollar on global markets is also critical under current circumstances, particularly within the framework of TBC Capital’s strategy to optimize the currency structure of financing.
Historically, the U.S. dollar’s status as a safe-haven asset has been viewed as an argument against borrowing in dollars, as global crises often bring simultaneous declines in revenues and increases in debt burdens. However, over the past year, this dynamic has shifted to some extent.
TBC Capital will continue to monitor developments closely and update its assessments as new information becomes available.
For more information follow the link: https://tbccapital.ge/ge/publications/all-publications/singleview/30007406-macro-update-georgia
