Georgia's economic growth expected to decrease due to political unrest, which has negatively impacted business confidence
In a positive outlook for the Caucasus region, the European Commission's Spring 2025 Economic Forecast has projected Georgia's economy to maintain a solid pace of expansion, with growth expected at 5-6% in both 2025 and 2026. This growth is attributed to robust domestic demand and Georgia's strategic position amidst geopolitical shifts driven by Russia's war in Ukraine.
The government of Georgia posted a 2.1% of GDP deficit in 2024, below the 2.5% budgeted level, thanks to a surge in tax revenues. This deficit is expected to stay near 2% of GDP in 2025-2026. Public investment is set to remain strong in Georgia, with continued investment in infrastructure and strategic sectors like tourism and energy contributing to growth.
Private consumption is forecasted to remain the primary driver of Georgia's economy, backed by ongoing real wage increases and dynamic consumer credit. In 2024, real wages in Georgia jumped by 15%, a result of both economic expansion and rising living costs, particularly housing. This wage growth has led to a decline in unemployment, with the rate dropping from 16.4% in 2023 to 13.9% in 2024, and is forecast to decline further, though at a slower rate.
However, the report warns of "unusually high uncertainty" stemming from domestic political developments and regional geopolitical tensions in Georgia. Business confidence has weakened significantly in early 2025, reflecting the country's escalating political tensions. The Commission notes that Georgia continues to benefit from the reallocation of services and trade routes away from Russia, including a notable influx of Russian migrants-particularly high-skilled professionals in sectors like IT.
The economic outlook remains broadly positive for Georgia, but challenges lie ahead. Global economic slowdowns or shifts in trade policies could affect Georgia's export-driven sectors. Higher global commodity prices and potential domestic inflation could strain household budgets and economic stability. Political instability can impact business confidence and investment decisions, and Georgia's economy is expected to decelerate slightly in 2025 and 2026, but still maintain a solid pace of expansion at 5-6%.
Inflation, which fell to 1.1% in 2024, is expected to rise to an average of 4% in 2025, before gradually easing back toward the National Bank's 3% target in 2026. The current price uptick is driven by wage pressures, exchange rate depreciation, and base effects. Despite these challenges, the Georgian economy is expected to continue its positive trajectory, bolstered by investment, infrastructure development, and strong trade relations with European countries and other partners.
The government's financial management in Georgia has led to a lower-than-expected deficit in 2024, with public investment remaining strong in strategic sectors like tourism and energy, demonstrating a commitment to business growth.
Despite the positive economic outlook, concerns about political instability and its impact on business confidence persist, as shown by a significant weakening in 2025, highlighting the importance of maintaining a stable business environment.
