ISET Policy Institute continues to update Georgian society about the current macroeconomic developments in the country. The highlights of its Macroeconomic Monthly Review of the Georgian Economy, December 2012 are as follows:

• According to GeoStat, year on year (y-o-y) economic growth in Georgia has been -0.8% in December and 2.5% in the 4th quarter. ISET Policy Institute’s last growth forecasts for the 4th quarter of 2012 (6.2%) had been quite optimistic compared to GeoStat estimates, potentially pointing to the fact that our model still omits some important exogenous shocks. Based on currently available information ISET Policy Institute’s growth forecast for the 1st quarter of 2013 stands at a moderate 5.4%.
• Consumer confidence (and both its components – the present situation index and expectations index) started to pick up after a dramatic fall in December. Worsening consumer confidence, after the elections, is a widely observed phenomenon across the world. Its improvement in January at least points towards a stabilization of economic activity.
• Prices decreased in December, in both y-o-y and monthly terms. CPI inflation was -1.4% and -0.3%, respectively. Several price determinants include deflationary expectations, the declaration about the formation of an anti-trust agency and a further decline of world prices.
• Money aggregates (M1 and M2) have increased by 7% compared to November. Consequently, we expect a short-run effect in the form of a revival of economic activity. The National Bank of Georgia continues its attempts to stimulate the economy by reducing monetary policy rates; however, we expect a time lag before getting the intended effects.
• The budget was approved in December. Expected Budget revenues stand at 8.4 bln GEL. Additionally, government expenditures have increased in both y-o-y (7%) and monthly (65%) terms.
• Georgia continues to be an import-dependent economy, with a substantial dependence on world prices. In December, foreign trade, both exports (21%) and imports (8.6%), declined in y-o-y terms.

Overall, we expect the economic activity of Georgia to be moderate and predict 1st quarter growth to be 5.4%.

ISET Policy Institute will publish its next report about the economic trends of January 2013 in mid-March.