Georgia's growth slowed to 6.0% year on year in September and fuel-driven inflation could force a December rate hike, Galt & Taggart said in a report on October 30.

September's growth followed 6.3% in August and brought the average for the first nine months to 7.4% y/y, according to the monthly review by the research and investment banking arm of Bank of Georgia. Construction, ICT, mining, trade and financial services drove growth in September, while manufacturing contracted.

Georgia is still one of the fastest-growing economies in the former Soviet space, but the pace is easing steadily from the 9% posted in the first quarter. Growth moderated to 7% in the second quarter and has now run at 6-6.3% for two months. Galt & Taggart kept its full-year forecast at 7.5% for 2026 and 6.0% for 2027.

The IMF is a little more cautious, projecting growth of 7.2% this year and 5.7% in 2027. That still puts Georgia third in the region next year, behind Kyrgyzstan on 7.0% and Uzbekistan on 6.5%. Over 2028-31 the Fund expects growth to average 5.0%, lifting nominal GDP to $70.1bn and GDP per capita to around $17,900 by 2031.

Headline inflation held at 5.6% y/y in September, unchanged from August, but its make-up shifted. Imported inflation accelerated to 7.8% from 5.7%, driven by higher petrol and diesel prices, while price growth for domestic and mixed goods eased to 4.9% and 4.8% respectively. Core inflation, which excludes food, energy and tobacco, edged down to 3.5% from 3.6%, and services inflation slowed to 3.7% from 4.4%.

The National Bank of Georgia (NBG) left its policy rate at 8.25% on October 21, its fourth hold in a row after keeping it unchanged in September. Energy prices pushed up by prolonged tensions in the Middle East contributed around two percentage points of September's inflation, but the NBG judges the effect on inflation expectations to be moderate so far and has signalled further moderate tightening if needed.

"We expect the NBG to maintain a moderately tight stance for longer and do not rule out a 25bps hike at its December meeting this year," Galt & Taggart said. It forecasts average inflation of 5.3% this year and 3.2% in 2027.

The lari firmed a further 0.4% m/m against the dollar in October on solid FX inflows, deposit de-dollarisation, tight monetary policy and steady non-resident demand for local-currency treasuries. The NBG used the strength to buy $248.5mn on the FX market in September, lifting gross international reserves to a record $8.2bn, or 128% of the IMF's reserve adequacy metric. Galt & Taggart expects the lari to stay broadly stable, averaging around GEL2.6 to the dollar in 2027.

Trade growth cooled sharply on a high base. Goods exports rose 4.0% y/y to $731.5mn in September after 24.6% growth in August, led by petroleum products, precious metals, fertilisers and ferro-alloys, while exports of cars, nuts and spirits fell. Imports accelerated 15.3% to $1.8bn on crude and refined oil, electronics and generators, widening the monthly trade deficit by 24.6% to $1.1bn. Over the nine months, exports grew 19.6% to $6.2bn and imports 5.3% to $14.4bn, narrowing the deficit by 3.3% to $8.2bn.

Tourism, which the government has warned could tip the economy into recession if Russian visitors dry up, was flat. International arrivals were 5.3mn in the first nine months, up 0.1% y/y, as a 2.3% rise in tourists to 4.4mn was offset by a 9.0% fall in same-day visitors to 0.9mn. Revenues did better, rising 4.4% to $3.8bn as visitors spent more. Galt & Taggart forecasts tourism revenues of $4.9bn this year and $5.3bn in 2027.

Bank credit growth, excluding currency effects, accelerated to 16.9% y/y in September from 14.8% in August, taking the loan book to GEL78.1bn ($30.1bn). Corporate lending picked up to 15.3% from 11.7%, while retail lending grew faster still at 18.3%. Deposits rose 20.5% to GEL77.4bn ($29.8bn). Loan dollarisation edged up 0.25 percentage points m/m to 41.5%, while deposit dollarisation fell 0.23 points to 43.0%, both below year-ago levels.