Irakli Gharibashvili: We have a growth rate of 12.7% for 6 months, which is unprecedented in recent years.
Verdict: FactCheck concludes that Irakli Gharibashvili’s statement is HALF TRUE.
Analysis:
Georgian PM Irakli Gharibashvili stated the following regarding the dynamics of economic growth: “We had 45% growth in April, 25% in May, 18% in June. We have a growth rate of 12.7% for 6 months, which is unprecedented in recent years. "
According to the preliminary estimates of the National Statistics Office of Georgia (GeoStat), in June 2021, compared to the corresponding period of the previous year, real GDP growth was 18.7 percent, while the average for the first six months of the year 2021 was 12.7 percent. Economic growth in the second quarter of 2021, according to preliminary data, was 29.8%, while the average decline in the first quarter was 4.5%. According to GeoStat, in April-June 2021 the economic growth was particularly high in the manufacturing industry, financial and insurance activities, trade, real estate, hotels and restaurants industries, construction, transport and warehousing.
Undoubtedly, the high rate of economic growth is partly due to the base effect, as during March-June 2020, unprecedentedly severe pandemic measures were imposed, which virtually paralyzed much of the economy. To rigorously and consistently assess the severity of the constraints, researchers from Oxford University developed a Stringency Index. The index measures the stringency of measures taken by countries according to various criteria. These criteria are restrictions on movement, health system response, closure of educational institutions, etc. Each criterion is rated from 0 to 100. The dynamics of economic growth and the Stringency Index of economic constraints are presented in Figure 1. In monthly terms, the annual economic growth of 44.8% in April 2021 exceeded all expectations, because not only was the base effect caused by the reduction in April 2020 exceeded, but even compared to 2019, the economic growth was still 20.7%. However, for May (25.7%) and June (18.8%), the economic growth forecast is around 9%, when compared to the same period in 2019.
Chart 1: Monthly dynamics (%) of economic growth (month-over-month of the previous year) and Stringency Index of economic constraints in 2020-2021
Source: National Statistics Office of Georgia, Oxford’s CORONAVIRUS GOVERNMENT RESPONSE TRACKER
The objective information on the dynamics of economic growth is so far very scarce and there are too many questions in the society regarding the issue. As already mentioned above, in the recent dynamics, the share of the base effect is also high. In addition, as the unprecedentedly high growth dynamics named by the PM extend to just a few months, it is still too early to draw conclusions. Given that Georgia's economy is already small, an even smaller figure (base) broken down by its monthly rate, may technically fall short of the overall picture under the influence of many factors, including as a result of small delays or advances in relatively short-term activities. This is especially true when standard economic processes and decisions are volatile in the face of high levels of regulation changes and uncertainty (delayed or on the contrary, carried out in advance). As an example of the fragility of the current situation, we can review the developments in the tourism sector, where the easing of regulations, on the one hand, made it possible to significantly restore economic processes and open the state borders, but on the other hand, it extremely worsened the epidemiological situation in Georgia, which may indicate on inconsistent deregulation.
According to the International Monetary Fund (IMF) assessment (July 19, 2021), the economy is expected to grow by 7.7% during the year, which indicates a generally positive dynamic. The IMF's initial forecast was 3.7%. However, this still leaves the PM’s statement about the unprecedented recovery of the economy questionable. According to the Minister of Finance of Georgia, the IMF forecast coincides with the forecast of the Government of Georgia, nevertheless the Minister does not rule out the possibility of an optimistic scenario, which means double-digit growth of the Georgian economy, i.e. a 10% growth. However, in the face of significant uncertainty and a sharp deterioration of the COVID-19 situation, which is highly likely to lead to additional severe restrictions in the near future, it is also premature to discuss the possibility of developing an optimistic scenario. With 7.7% growth, the economy will grow by only 1% compared to 2019.
On the one hand, the PM’s statement is partially accurate, although important details which are necessary for full understanding, are omitted. Therefore, FactCheck concludes that Irakli Gharibashvili's statement is HALF TRUE.
