Tbilisi, Georgia — Renewed tensions in the Middle East are increasing inflationary risks globally, while Georgia’s economic growth outlook remains unchanged, according to the latest TBC Capital macroeconomic update.
Following the framework agreement reached in June and a month-long period of relative calm, tensions in the Middle East have intensified again, although the situation remains highly fluid and subject to rapid changes. As TBC Capital noted in June, financial markets may have assessed early signs of de-escalation with excessive optimism, leading to significant volatility in commodity prices.
At this stage, TBC Capital estimates that the primary impact of the renewed escalation on Georgia’s economy is likely to be reflected in inflation rather than economic growth. Real-time indicators currently show no signs of a slowdown in economic activity in July.
According to preliminary data, Georgia’s economic growth reached 8.6% in June, bringing the average growth rate for the first half of 2026 to 7.9%, in line with expectations. TBC Capital maintains its baseline forecast of 7.4% economic growth for 2026.
Since the second half of July, air traffic at Georgian airports has strengthened, while both total consumer spending and non-resident card transactions continue to demonstrate solid momentum.
Detailed data also indicate that private consumption remained the main driver of growth in the first quarter, while net exports made a positive contribution, supported by strong export growth in the information and communication technology (ICT) sector.
Georgia’s External Balance Improves, Supported by ICT Exports
In the first quarter, Georgia’s seasonally adjusted current account balance, excluding reinvested earnings, recorded a surplus of 0.1% of GDP (compared with an unadjusted deficit of 3.2% of GDP).
Since the second quarter of 2025, the current account balance has remained positive for four consecutive quarters, reaching 1% of GDP during this period — the strongest result in Georgia’s historical data series. This indicates that, over the past year, Georgia has been a net creditor to the rest of the world.
According to TBC Capital, the improvement in the current account has been primarily driven by the expansion of ICT exports. Strong merchandise exports combined with relatively moderate import growth have significantly reduced the trade deficit during the first half of the year, pointing to further improvement in the current account balance in the second quarter.
As TBC Capital has previously highlighted, rising international prices create additional inflationary pressure, while at the same time supporting export revenues.
Tourism Recovers After Regional Shock
Regional tensions negatively affected tourism flows in March and April; however, recovery has been visible in recent months.
Tourism revenues in the second quarter decreased by 3.8% year-on-year, mainly due to lower revenues from visitors from the Middle East and South Asia. This decline was partially offset by increased revenues from the European Union, Ukraine, and Russia.
According to TBC Capital’s estimates, tourism revenues in May and June had already exceeded last year’s levels. Operational data for July also suggest that, despite renewed regional tensions, no slowdown similar to that observed in spring has occurred.
Strong Foreign Currency Inflows Support the GEL
Net foreign currency inflows increased further in June, primarily driven by merchandise exports. Against the backdrop of excess foreign currency supply, the National Bank of Georgia’s foreign currency purchases exceeded USD 2 billion during the first half of the year, while estimated net international reserves reached USD 4.6 billion by the end of June.
The Georgian lari strengthened slightly; however, TBC Capital estimates that the currency remains below its equilibrium level in both the short and long term.
The forecast for the exchange rate remains unchanged, with USD/GEL expected to reach 2.60–2.65 by the end of the year. At the same time, current trends indicate a potential move toward a stronger lari scenario.
Inflation Forecast Revised Upward to 6%
Amid renewed inflationary pressure in global markets, TBC Capital has revised its year-end 2026 inflation forecast upward from 5.1% to 6%.
The updated forecast returns to a previous scenario based on assumptions of prolonged geopolitical tensions and Brent crude oil prices stabilising in the range of USD 80–85 per barrel by December.
As the current forecast assumes some decline in oil prices later this year, a further increase or prolonged stability at elevated price levels could lead to an additional upward revision of the inflation outlook.
Annual inflation reached 5.8% in June, with significant contributions coming from higher fuel and food prices, as well as increased electricity tariffs. At the same time, core inflation indicators suggest that underlying price pressures remain relatively moderate.
In July, global food and oil prices increased sharply, despite some recent stabilisation. As a result, gasoline prices, which had slightly declined at the beginning of the month, started rising again across major fuel networks from July 20.
National Bank Keeps Monetary Policy Rate Unchanged
At its meeting on 29 July, the National Bank of Georgia maintained the monetary policy rate at 8.25%, in line with market expectations.
According to TBC Capital’s baseline scenario, the rate is expected to remain unchanged through the end of the year. However, if inflationary pressures in international markets intensify further, an increase to 8.5% cannot be ruled out.
The full version of the publication is available at:
https://tbccapital.ge/ge/publications/all-publications/singleview/30007622-macro-update-georgia
