Europe Edge

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Europe Edge

er in recent

%oya months (Figure 4). In contrast, food inflation momentum has 22 Non-food goods

softened, a pattern that stands in sharp contrast to neighboring 18 Food

Armenia and Azerbaijan (Figure 5).

14 Services

10 6.6 In its press release, the NBG placed greater emphasis on its

6 5.7 central forecast scenario, which assumes the oil shock will

2 peak in Q2 and gradually fade in the second half of the year.

3.9 Under this baseline, the NBG expects inflation to average

-2

21 22 23 24 25 26 4.9% in 2026 (JPMe: 5.3%).

Source: AzStat, J.P. Morgan

A further decline in oil prices would be particularly positive

Real GDP growth was unchanged in January–May 2026 rela- for Georgia, as it would remove additional pressure from the

tive to the same period in 2025, largely constrained by a 1% headline inflation and reduce the risk of impacting the broad-

oya contraction in the oil economy. This contraction reflects er price formation in the economy. However, the bigger prob-

binding production constraints in the oil and gas sector. By lem has been centered in the core inflation, which stood at

contrast, non-oil activity remained positive, expanding by 3.8% in May versus 2.4% in January (Figure 6).

0.4% oya (Figure 3). Looking ahead, higher oil and gas prices

this year are expected to support the oil economy and, indi- Services inflation has been sticky, and the output growth

rectly, bolster non-oil growth in the coming months. Never- (8.3% YTD) has been robust. The economy is likely to be

theless, we expect growth to remain subdued at 1.8% oya overheating. Recall that the NBG was the only central bank in

growth in 2026, up from 1.4% in 2025. Central Asia and the Caucasus to raise its policy rate by 25 bp

during the Iran crisis, despite an already moderately tight