Lasha Khutsishvili: “According to the first two months’ data there is a substantial growth as total growth figure of January and February reached 16.3%. Naturally, it has its own reasons, in addition to base effect. There is a large growth in regard to export.”

Verdict: FactCheck concludes that Lasha Khutsishvili’s statement is HALF TRUE.

Resume:

In February 2022, real gross domestic product (GDP) growth reached 14.6% as compared to the same period of the previous year whilst average economic growth figure for January-February is 16.3%. In January 2022, economic growth rate was 18% as compared to the same period of 2021. Certainly, high economic growth figure in January and February is partially because of the base effect and the Minister of Finance gave relevant clarification of the issue. However, as compared to February 2020 when the pandemic was not yet announced, economic growth rate in February 2022 is 8.7% whilst in case of January 2022 economic growth as compared to January 2020 is merely 4.4%. Generally, this definitely cannot be considered as a high growth rate for two years and at best, it is a moderate growth in light of the pandemic.

Export growth directly affects GDP growth. According to the first two months’ data of 2020, export has indeed increased considerably. In January 2022, export increased by 47.6% as compared to January 2020 whilst in case of February growth reached 60.3%. Total export growth in January-February was 54.5% and in two-months range such growth is indeed unprecedented and export figures sharply exceed even pre-pandemic indicators. Export of local produce also increased considerably which is more noteworthy if analysed in connection with GDP growth. According to two months’ data, growth of local produce export is 51.7% which is slightly– approximately 3 percentage points – behind total export growth (including re-export), although growth is still significant. Of note is that the figure has not dropped amid the pandemic and the growth is substantial beyond the so called base effect.

Therefore, Lasha Khutsishvili’s statement about export growth and its positive effect on economic growth is true. However, the other part of the Minister’s statement about assessment of economic growth, is false. Despite valid pinpointing to base effect, the Minister of Finance still referred to the economic growth as something “significant and high” and this assessment is far from being realistic. Therefore, Lasha Khutsishvili’s statement is half true.

Analysis:

According to the preliminary estimates of the National Statistics Office of Georgia, In February 2022, real gross domestic product (GDP) growth reached 14.6% as compared to the same period of the previous year whilst average economic growth figure for January-February is 16.3%. In January 2022, economic growth rate was 18% as compared to the same period of 2021.

Given the COVID-19 pandemic and relevant restrictive measures, Georgian economy has inflicted a serious damage. Economic recovery and further growth is the country’s vital need. The 18% and 14.6% economic growth rates, registered at the beginning of 2022, are impressive figures at a first glance. However, in line with the Minister’s statement, it is necessary to take the so called base effect into account when analysing economic growth figures.

It is undisputed that high economic growth figures in January and February of 2022 is partly attributable to base effect, because very stringent economic restrictions were in place in the first two months of 2021. These restrictions included complete suspension of intercity and municipal transport and ban on number of economic activities. Therefore, 18% and 14.6% growth were registered vis-à-vis figures decreased under stringent restrictions which is somehow a technical effect and not a substantial one.

Graph 1: Economic Growth Assessments By Months in 2020-2022

Source: National Statistics office of Georgia

However, as compared to February 2020 when the pandemic was not yet announced, economic growth rate in February 2022 is 8.7% whilst in case of January 2022 economic growth as compared to January 2020 is merely 4.4%. Generally, this definitely cannot be considered as a high growth rate for two years. Therefore, we may conclude that the economic growth is at best moderate in light of the pandemic. As compared to 2019, economy increased by 11.1% as of February 2022 in three years whilst in case of January the growth is 9.7%. In this case too, given the pandemic context, economic growth can be assessed as moderate. However, considering size of Georgia’s economy, general economic growth dynamic and needs, 11.1% and 9.7% growth rates in three years are low figures.

According to the first two months’ data of 2020, export has indeed increased considerably. In January 2022, export increased by 47.6% as compared to January 2020 whilst in case of February growth reached 60.3%. Total export growth in January-February was 54.5% and in two-months range such growth is indeed unprecedented and export figures sharply exceed even pre-pandemic indicators.

Table 1: Dynamic of Export of Goods in January-February of 2013-2022, USD Million

Source: National Statistics office of Georgia

All things being equal, the growth of export causes the growth of the GDP. Export leads to growth of Georgia’s GDP since export goods are mostly produced at Georgia’s territory if it is not a re-export. Re-export is a combination of import and export and therefore when importing it decreases net export and GDP and when exporting this imported good it increases net export and GDP. It is the difference between export and import values of re-export that amounts to the country’s profit. Therefore, whilst discussing export, it is important to analyse dynamic of local export (export without re-export) because this is what leads to the economic growth. Table 2 shows local produce dynamic. According to two months’ total figure, growth is 51.7% as compared to 2021 which is slightly – approximately 3 percentage points – behind total export growth (including re-export), although growth is still significant. Of note is that the figure has not dropped amid the pandemic and the growth is substantial beyond the so called base effect. On the other hand, of note is that the local produce export structure is still weak and mostly consist of raw, added value materials (copper ore, ferroalloys, mineral water, wines, fertilizers, etc).

Table 2: Local Produce Export Dynamic in 2013-2022, USD Million

Source: National Statistics office of Georgia