The Georgian economy continues to grow, but the trend remains unstable because the base underpinning the expansion is still narrow. According to our estimates, the 1H GDP increase was driven by a surge in FDI, heightened government spending, and a spectacular increase in the number of foreign tourists. Private household consumption is meager and remains the key drag on growth. Inflation decelerated rapidly in recent months after the lari strengthened. In 2015, the external environment was the key source of risk, but it has turned much more favorable in 2016. Steady FDI and debt inflows are covering the C/A deficit (which is poised to increase slightly this year) and enabling the NBG to replenish reserves.

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