TBC Capital has published its latest Macroeconomic Update, noting that its base-case scenario remains broadly unchanged, although the factors driving risks in both directions have become more pronounced.
After a roughly one-month pause, the conflict in the Middle East escalated again in recent days, triggering renewed volatility across global commodity markets. As highlighted in TBC Capital’s previous update, the primary impact of the escalation on Georgia’s economy is expected to be felt through inflation rather than economic growth.
Against this backdrop, Brent crude oil prices reached USD 97 per barrel on September 3, the highest level since July. At the same time, yields on long-term securities in developed economies rose sharply, driven by inflationary risks stemming from higher oil prices and expectations of tighter monetary policy by central banks.
According to TBC Capital, these developments indicate that markets are increasingly viewing the current shock as potentially longer-lasting rather than short-term, thereby increasing the risk of so-called second-round effects.
Economic growth remains strong
According to preliminary estimates, Georgia’s economy grew by 8.0% year-on-year in July, slightly exceeding TBC Capital’s base-case forecast of 7.4%. Average economic growth for January–July stood at 7.9%.
Meanwhile, both total and non-resident cashless spending accelerated further in August. The acceleration was particularly pronounced among non-residents, in line with the continued growth in air traffic at Georgian airports. TBC Capital uses these indicators to assess economic activity and forecast tourism revenues.
Inflation remains elevated
Annual inflation in August was largely unchanged at 5.6%. Prices increased more significantly on a monthly basis, largely due to higher petrol and diesel prices. These two components accounted for almost half of seasonally adjusted monthly inflation, which stood at 0.4%, equivalent to an annualized rate of 5.0%.
Against the backdrop of renewed tensions in the Middle East, fuel prices have continued to rise after declining slightly in early July.
In terms of the components of annual inflation, almost half of the overall increase is attributable to just five products: petrol, electricity tariffs, beef, bread and diesel.
Global food prices also increased in July following two consecutive months of decline. According to TBC Capital, the latest dynamics remain broadly consistent with its base-case scenario, which envisages annual inflation reaching around 6% by December.
TBC Capital expects inflation to moderate slightly in the coming months, partly due to a base effect related to bread prices. By December, however, the base effect is expected to work in the opposite direction.
The base-case scenario also assumes some moderation in oil prices during the remainder of the year. If oil prices remain at current levels or rise further, the inflation forecast could be revised upward. Conversely, a sharp decline in commodity prices, similar to that seen in June, would ease inflationary pressures.
TBC Capital sees stronger case for monetary policy tightening
TBC Capital’s base-case scenario continues to assume that the National Bank of Georgia will keep its monetary policy rate unchanged at 8.25% at its September 9 meeting. However, the arguments for monetary policy tightening have become stronger compared with the previous meeting.
The base case does not anticipate significant disinflation during the remainder of the year. At the same time, rising interest rates in foreign markets are narrowing the differential between domestic and foreign interest rates.
On the one hand, TBC Capital notes that the increase in inflation is largely driven by a limited number of products, while more persistent inflation indicators point to relatively moderate underlying pressure. On the other hand, the risk of second-round effects is increasing globally—an issue the National Bank of Georgia identified as one of the key arguments for tightening monetary policy in May.
As TBC Capital noted in its July review, if inflationary pressures in international markets intensify, an additional increase in the policy rate to 8.5% cannot be ruled out. The current escalation in the Middle East could potentially represent such a scenario.
However, given the current level of uncertainty, it remains difficult to assess where commodity prices will ultimately settle. TBC Capital therefore expects policymakers to continue monitoring developments before making further adjustments.
Stronger external inflows support the Georgian lari
Foreign-currency net inflows also increased further in July.
The trade deficit narrowed from 30.1% of GDP in 2025 to 26.4% of GDP during the first seven months of 2026, driven by a sharp increase in merchandise exports and continued moderate import growth.
According to TBC Capital’s assessment, the seasonally adjusted current-account balance excluding reinvestment improved further in the second quarter. The indicator had already recorded a surplus in the first quarter of 2026, with the positive trend continuing into the third quarter.
Against this backdrop, TBC Capital estimates that the Georgian lari remains weaker than its equilibrium level in both the short and long term.
The forecast for the lari remains unchanged, with the exchange rate expected to reach GEL 2.60–2.65 per USD by the end of the year. Nevertheless, as noted in TBC Capital’s previous review, current trends are increasingly pointing toward a scenario of a stronger lari.
NBG continues to build foreign-exchange reserves
Alongside strong foreign-currency inflows, TBC Capital expects the National Bank of Georgia (NBG) to continue purchasing foreign currency.
According to NBG data, international reserves at the end of July stood at 118.7% of the IMF’s Assessing Reserve Adequacy (ARA) metric, the highest level since 2011.
Foreign-exchange purchases reached USD 488 million in July, while total purchases during the first seven months of the year exceeded USD 2.5 billion.
Reserve accumulation was among the factors underpinning S&P’s decision on August 7 to revise Georgia’s sovereign credit rating outlook from stable to positive. According to the agency, further strengthening of the country’s external buffers could become one of the conditions for a future rating upgrade.
Against this backdrop, the NBG introduced measures in August aimed at reducing lari liquidity, including sales of its portfolio of Treasury securities and the issuance of certificates of deposit.
TBC Capital also highlights the fact that part of these securities was purchased by non-residents. As a result, the share of non-residents among holders of Georgian government securities reached its highest level since 2021, despite rising bond yields in the United States.
The full version of TBC Capital’s Macroeconomic Update is available here:
TBC Capital — Macroeconomic Update