Growth in the South Caucasus is projected to slow sharply from 7 percent in 2022 to 3 percent in 2023, as growth decelerates in key trading partners, including the European Union, says the World Bank’s Economic Update for the region, released today.

According to the report, against this backdrop, economic growth in Georgia is expected to ease to 4.4 percent in 2023, while remaining above the regional average (2.4 percent excluding the Russian Federation and Ukraine).

“Strong money inflows have contributed to the strengthening of the lari, which has helped contain inflationary pressures and reduce debt levels. Inflation is projected to continue to fall gradually in 2023 in Georgia, although some food and rental price pressures may persist,” reads the report.

It also said that regional output was now expected to grow by 1.4% in 2023, substantially better than the previously anticipated 0.1%.

“The positive, though deeply depressed, economic activity in 2023 reflects a softer contraction of Russia’s economy and an improvement in Ukraine’s outlook. Regional growth is expected to increase to an average of 2.7% over 2024-25 as inflation eases, domestic demand recovers, and the external environment improves.”

The outlook remains highly uncertain. Growth in 2023 may be weaker if the war caused by Russia’s invasion of Ukraine escalates further, food and energy prices continue to increase, interest rate hikes accelerate globally or in the region, or there is a sudden reversal of capital flows to the region. There could be spillovers to growth from the current banking developments in some advanced economies,” it added.