Outlook for 2011-12

The Economist Intelligence Unit expects Mikheil Saakashvili, who was re-elected president in January 2008, to remain in power in 2011-12. Mr Saakashvili's popularity waned following his failed attempt in August 2008 to regain the breakaway province of South Ossetia by force, which led to a brief but damaging conflict with Russia. However, divisions among the opposition will continue to limit its ability to mount a credible challenge to Mr Saakashvili. Real GDP is estimated to have expanded by 6.1% in 2010, following a contraction of 3.8% in 2009. Although growth is expected to slow to 4.3% in 2011 as external conditions weaken modestly, an improvement in 2012 will result in growth of 5.2% in that year. The current-account deficit will continue to narrow over the forecast period, to 8.3% of GDP in 2012.

The political scene

Although the opposition remains discontented with Mr Saakashvili, the failure of the main opposition parties to form an umbrella group prevents them from posing a genuine threat to Mr Saakashvili's United National Movement (UNM). Support for protests organised by the radical opposition remains weak, indicating that the electorate are growing tired of the instability brought by street protests, and that a calmer political climate lies ahead. Tension between Georgia and its breakaway territories is still elevated, but has not worsened.

Economic policy

In a state of the nation address in February Mr Saakashvili announced a wide range of measures that the government plans to implement to support the economy over the forecast period. These included extra funding to support agricultural production and the construction of a further 17 hydropower stations.

The domestic economy

Real GDP expanded by 6.5% year on year in the first three quarters of 2010, compared with a contraction of 5.2% year on year in the year-earlier period. Manufacturing, trade and transport expanded the most rapidly in this period. Year-on-year growth began to slow in the third quarter as the impact of base-period effects subsided. We estimate that real GDP expanded by 6.1% in 2010.

Foreign trade and payments

The current-account deficit narrowed to US$833.5m in the first three quarters of 2010, from US$916.3m in the year-earlier period. The expansion of the trade deficit in January-September 2010 compared with the year-earlier period was partly offset by a higher surplus on current transfers. We estimate a current-account deficit equivalent to 10.6% of GDP in 2010.