Georgia: Put to the test by the war in Ukraine

A small Western Asian country, Georgia has an outward-looking economic model,mainly based on services such as trade and tourism. The Georgian economy is thus highly vulnerable to external shocks and was hard hit by the Covid-19 crisis, with a recession of 6.8% in 2020, the worst since 1994. In light of these characteristics and the country’s economic ties with Russia and Ukraine, most observers expected the Georgian economy to be adversely affected by the conflict between these two countries.However, these anticipated negative effects have not materialized and economic growth remained buoyant in 2022 (+10.1%, after the rebound of +10.5% in 2021). This was in particular due to a recovery in tourism and an explosion in migratory and financial flows from Russia. These factors have also contributed to a reduction in the fiscal and current account deficits (-2.6% of GDP and -4.0% of GDP, respectively) and an appreciation of the lari. In 2023, growth is expected to have remained above its potential (6.2% according to the International Monetary Fund – IMF) and the fiscal and current account deficits would appear to have been contained.