{"id":16457,"date":"2022-10-28T04:41:47","date_gmt":"2022-10-28T04:41:47","guid":{"rendered":"https:\/\/eprc.ge\/?post_type=news_p_type&p=16457"},"modified":"2022-11-24T07:42:16","modified_gmt":"2022-11-24T07:42:16","slug":"the-economy-of-georgia-effects-of-war-2","status":"publish","type":"news_p_type","link":"https:\/\/eprc.ge\/en\/news\/the-economy-of-georgia-effects-of-war-2\/","title":{"rendered":"Economy of Georgia – Impact of the War"},"content":{"rendered":"

In 2022, the main economic trends for Georgia, as well as for the rest of the world, were determined by the war in Ukraine. As the data show, Georgia has become more economically dependent on Russia, which poses significant risks to the country\u2019s long-term security and resilience; in addition, the drastic rise in prices caused by the considerable increase in demand induced by the massive influx of immigrants from Russia has led to the undermining of a certain segment of Georgia\u2019s middle class, further impeding the country\u2019s economic stability and democratic development. These and other trends are briefly discussed below:<\/em><\/strong><\/p>\n

In case of Georgia, we witnessed\u00a0vast number of temporary migrants flooding the country \u2013\u00a0In the first eight months of 2022 (from January to August) the number of tourists has increased by 155%, compared to the same period in 2021. Additionally, the number of visitors for the same time period has increased by 209%. Moreover, in September, as a result of the announcement of partial mobilization, 233 000 people entered Georgia from Russia.<\/em><\/strong><\/p>\n

For a small country like Georgia with only 3.5 million citizens, this is quite a significant volume, which influenced the general growth in demand \u2013 both on immovable and movable property, as well as on products. Increase in demand was reflected on trade turnover, economic growth and prices, i.e. the inflation rate. Due to sanctions imposed on Russia, demand on certain products increased, while the prices on Russian oil dropped. The fact that Georgia refused to join the sanctions, also affected the economic tendencies in Georgia.<\/p>\n

Several indicators should be highlighted:<\/p>\n

The Prices on Real Estate \u2013\u00a0<\/strong>According to the National Statistics Office of Georgia, within the first nine months of 2022, the prices on the real estate\u00a0increased by 10.7%, on average. Prices have increased on movable properties as well, such as cars, etc.<\/p>\n

Economic growth and inflation \u2013\u00a0<\/strong>The Government often highlights the unprecedented economic growth, which is primarily driven by increase in demand and trade.<\/p>\n

According to the preliminary estimates, the average rate of economic growth for the first eight months in 2022 is 10.3%. The consumer price index (inflation) has increased by 11.9% compared to the corresponding period last year.<\/p>\n

In other words, inflation, the rate of increase in prices is higher than the rate of economic growth.<\/em><\/strong><\/p>\n

Increase in the real estate and consumer prices has placed local citizens in an uncompetitive position. For them the prices for rent and other products has increased drastically, resulting in impoverishment of the middle class\u00a0 and further deepening of poverty levels. \u00a0\u00a0<\/em><\/strong><\/p>\n

Trade<\/strong><\/p>\n

Increase in demand on the products in Georgia, as well as on certain products in Russia, have caused the increase of the export-import\u00a0index of Georgia \u2013 both in general,\u00a0with different countries, and\u00a0with Russia<\/em><\/strong>\u00a0\u2013<\/em><\/strong>\u00a0namely, it increased\u00a0the trade dependence on Russia, especially on Russian imports. Among them \u2013 Georgia\u2019s dependence on Russian oil.<\/em><\/strong><\/p>\n

In January-September 2022, Georgia\u2019s export increased by 37.4% and import increased by 34.4%. In addition, Georgia\u2019s domestic export (export without re-export) increased by 29.9% compared to the corresponding period in 2021, which means that a large part of the increase comes from re-exports;<\/p>\n

In the context of trade, the most interesting part is the geography of export \u2013\u00a0Compared to the previous years, the share of the EU in export has significantly decreased \u2013 if in 2019 (before Covid-19) the share of the EU in export was\u00a021.9%, in 2022 the share of the EU in total export equaled 14.9%.<\/em><\/strong><\/p>\n

Increase of the dependency on Russia, especially in the context of import-dependency \u2013\u00a0According to the GeoStat, in January-September, Georgia\u2019s export to Russia increased by 11.5%, and the import increased from $720 million to $1.244 million, which means approximately 70% increase.<\/em><\/strong><\/p>\n

Export:<\/strong>, \u00a0re-export of cars has increased fourfold. Export of wine has increased by 10%, and\u00a0of other alcoholic beverages has increased approximately by 40%. According to the National Statistics Office of Georgia, the largest share in export consists of unclassified expenses.<\/p>\n

Import:\u00a0<\/strong>import of oil products from Russia has increased by 352%. Due to the relatively low prices on the Russian market and the desire to receive high profit margins, oil importers have increased the import of refined fuel from Russia. If Russia\u2019s share in the import of petroleum products was 16.6% in the same period last year, this year it exceeded 42%.<\/p>\n

Import of other products from Russia has increased by 188$ million. It is noteworthy that\u00a0dependence of Georgia on Russian wheat remains high.<\/p>\n

 <\/p>\n

Remittances and Investments<\/strong><\/p>\n

In the first nine months of 2022, the volume of remittances has increased by 175% compared to the same period last year. The volume of remittances\u00a0 has increased significantly, just after April 2022, Georgia received more than 1 billion USD in remittances from Russia.<\/p>\n

There is also a slight increase in investment \u2013 both compared to the pandemic and pre-pandemic period.\u00a0 \u00a0Namely, in the 2nd quarter of 2022, the volume of the direct foreign investments equaled 920 million USD, according to the preliminary data published by the National Statistical Service of Georgia on June 9.<\/p>\n

Shortage of\u00a0the\u00a0labor force and jobs \u2013<\/strong>\u00a0Georgia is witnessing the paradoxical situation of high unemployment rates and shortage of labor force at the same time. This is caused mainly due to the outflow of the labor force (Only in 2021, up to 100,000 people left the country), additionally the increase in prices on the market led to an increase in the demand for salaries, businesses could not keep up with the change yet.<\/p>\n

The latter trend can be explained by the country\u2019s increasing dependence on remittances, i.e. when a large part of the population depends on remittances sent by immigrants.<\/p>\n

 <\/p>\n

Conclusion<\/strong><\/p>\n

 <\/p>\n

The economic indicators show that Georgia has the short-term economic effect, caused by the Russia\u2019s invasion of Ukraine, refusal of Georgia to join the international sanctions against Russia and the inflow of temporary migrants.<\/p>\n

Due to this effect, we are witnessing alarming trends \u2013 such as the increase in import and elevated economic dependence on Russia,\u00a0 energy dependence among others; reduction of the share of the EU in exports; A further increase in the volume of remittances in the economy \u2013 the total forecast of remittances in 2022 has increased to 4 billion US dollars; Two-digit inflation caused by this increased demand brought by the external factors that, ; This, on the one hand, makes life more expensive for local residents, and on the other hand,\u00a0 is quite shortsighted and unsustainable. These trends make the economy less predictable and fragile. Unfortunately, there is minimal growth in investments and the rate of new sustainable investment projects, which would determine the perspective of the longer-term economic growth.<\/p>\n

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