Following another year of very strong growth, Georgia’s economic activity is projected to decelerate but to remain robust at 5-6% in 2025 and 2026, partly reflecting positive spillovers from Russia’s war of aggression on Ukraine, according to a report published by the European Commission - European Economic Forecast.

According to the document, growth is expected to continue to be driven by domestic demand, especially by private and government consumption. Inflation is set to pick up temporarily due to the pass-through from wage increases and demand pressures, before returning close to the central bank’s target. The current account deficit is projected to widen, driven by the increasing trade deficit. The general government deficit is expected to remain contained, and the public debt-to-GDP ratio is set to continue declining.

“Economic growth was very strong in 2024, at 9.4%. Private and government consumption were the most important growth factors, stimulated by strong wage increases, employment growth and fast-growing consumer loans. Investment picked up strongly in the same period, supported by higher business lending, good financial results of enterprises and strong public investment. The contributions of net exports of goods and services and of inventories to growth were negative. On the supply side, the value added increased most in ICT, construction, tourism, transport and other services. Georgia continues to benefit from the reallocation of certain services and trade routes away from Russia following its full-scale war of aggression against Ukraine, reflecting in part a sizeable inward migration from Russia. Growth is projected to decelerate in 2025 and 2026 but to remain robust at 5-6%. Private consumption is set to remain the main growth driving factor, supported by strong consumer lending and continued, albeit slower, increases in real wages.

Investment is also projected to grow, driven by dynamic business loans and strong public investment, although business confidence has deteriorated markedly in the first quarter of 2025 reflecting the political turmoil in the country. The contribution of net exports to growth is set to remain negative, although lower than in 2024, as the demand for goods imports triggered by strong consumption and investment is expected to be stronger than the positive contribution from growing tourism and other services exports. The forecast is subject to an unusually high degree of uncertainty regarding domestic political developments and how geopolitical tension plays out in the region, which may adversely affect business and consumer sentiments”, reads the report.

According to the document, supported by the economic expansion, the unemployment rate decreased sizeably from 16.4% in 2023 to 13.9% in 2024 and is projected to continue falling in 2025 and 2026, although at a slower pace.

„The employment rate increased by 2.5 pps in 2024, although it remained at a relatively low level of 47.1%. Preliminary data indicate a very strong increase in wages, by 15% in real terms in 2024, which reflects several factors: the wage contagion from high-skilled migrants from Russia, notably to the IT sector, the willingness of Georgian companies to compensate for rising living costs, especially of housing rents in the main cities, labour shortages in some production sectors and the rapid decrease in inflation in 2024. Wage growth is expected to ease in the next years, but to remain higher than productivity growth.

The average consumer price inflation slowed down to 1.1% in 2024 thanks to low imported inflation and prudent monetary policy of the central bank. Inflation has, however, increased in the first months of 2025 to 3.4% in April and is expected to reach 4% on average in 2025. The acceleration of consumer prices can be attributed to the pass-through from wage increases and from the limited depreciation of the lari, as well as to base effects. As these factors are expected to gradually fade, inflation is set to return towards the central bank’s 3% target in 2026.

The current account deficit narrowed down to 4.3% of GDP in 2024 from a 5.6% of GDP in 2023. Goods exports increased by 6% in USD terms, thanks to a rebound in demand for metallurgical products and re-exported cars. Imports increased at a similar rate, due to higher domestic demand for investment and consumer goods. A stronger surplus in services and a lower net outflow of investment income have contributed to diminishing of the current account deficit, while lower inflow of remittances had an opposite effect. In 2025 and 2026 the current account deficit is expected to slightly widen. The surplus in services is projected to rise, mainly thanks to the rising inflow of tourists, which does not seem to be affected by the political developments in Georgia, while the trade deficit is set to increase as imports are projected to grow faster than exports.

The general government outturn in 2024 was supported by a strong revenue performance, which was 18% higher than in the same period of 2023. It was boosted by the economic expansion, wage increases stimulating personal income tax revenues, as well as by discretionary measures such as increases in gambling fees and taxes from the banking sector. Current expenditure increased by 20% in the same period, mainly due rising public sector salaries and interest expenditure, while the already high capital expenditure increased by 10%. The general government deficit stood at 2.1% of GDP in 2024, below the 2.5% of GDP deficit stipulated in the budget law. The deficit-to-GDP ratio in 2025 and 2026 is expected to remain at around 2% of GDP, well below 3% of GDP ceiling from the country’s fiscal rule. The general government debt amounted to 36.1% of GDP in December 2024 and is expected to further decline over the forecast horizon”, reads the report.