The Georgian economy in 2018 and beyond The Georgian economy delivered a solid 4.7% growth in Real GDP growth: 2018 and was resilient to negative developments in Turkey. Georgia, CIS, Eastern Europe Exports surged 22.6% y-o-y, tourism revenues increased by 19.1% y-o-y. Similarly, remittances posted 13.9% y-o-y with a positive impact on private consumption. Improved consumer and business sentiments as well as solid banking 8 sector credit portfolio growth supported economic activity. 7 6 Increased diversification of economic linkages insulates 5 the country from negative economic shocks from any 4 particular partner country. Russia and Turkey continue to 3 remain the largest trading partners of Georgia and most 2 of the tourists in Georgia arrive from these two countries. 1 However, rising tourist revenues and remittances mostly 0 from the EU, and growing exports to other countries -1 enhance the economy’s resilience. External imbalances -2 continue easing with current account (CA) deficit 2010 2011 2012 2013 2014 2015 2016 2017 2018E2019F2020F estimated at 8.0% of GDP in 2018, down from 8.8% of GDP in 2017. The fiscal deficit also improved to 2.5% of Georgia CIS Eastern Europe E=Estimate F=Forecast GDP in 2018, down from 2.9% of GDP in 2017. Notably, Source: IMF, Geostat Georgia recorded its first ever CA surplus in 3Q18, coming in at 0.3% of GDP. This improvement was achieved without a fall in overall consumption level as imports posted growth, fully compensated by solid tourism revenues Currency weakening versus US Dollar and goods exports. Georgia’s flexible exchange rate continue to serve the 59.2% country well. The currency remained relatively stable 53.9% 55.5% 52.0% 52.1% throughout 2018 despite the negative expectations coming 45.3% from the collapse of the Turkish Lira. Despite this challenge, 34.7% the NBG continued to build reserves with a purchase of nearly US$ 200 million in FX market, boosting international 14.5% 16.3% 18.7% reserves to US$ 3.3 billion at the end of 2018. The relative strength of the Georgian Lari, along with weak fiscal spending, slowed annual average inflation to 2.6% in 2018 from 6.0% in 2017. With inflation below 3.0% target, NBG responded to subdued inflationary pressures and cut the refinancing rate by 0.25bps to 7.0% in July 2018. Source: Bloomberg Economic growth proved resilient in 2018 and is projected Note: US$ per unit of national currency, period 1-Aug-2014 – 30-Jan-2019 at 4.6% in 2019 by IMF. Downside risks to the outlook stemming from weaker external demand and fresh regulations on banking sector can be mitigated by prudent macroeconomic policies, continued exchange rate flexibility, and reserve accumulation. Substantial increase in public capital expenditures is expected to support growth with positive spillovers on private investments. Ongoing reforms in various directions – pension reform, capital market development and business enhancing measures – are expected to further support investments, thus reinforcing the country’s economic potential. The IMF expects growth to average 5.2% annually in 2020-2023, making Georgia the fastest growing economy in the region. 18 Annual Report 2018Bank of Georgia Group PLC oruEainemrAavodloMaigroeGaissuRsuraleBnatshkazaKnajiabrezAeniarkUyekruT