"The stable outlook balances Georgia's strong ongoing economic recovery against its relatively weak external position, on a stock basis, and elevated regional security and geopolitical risks, which we expect will persist over the next 12 months", - the report reads.

S&P writes that main factor driving Georgia's economic upswing is the significant inflow of migrants since the start of the Russia-Ukraine conflict. Arrivals from Russia, Ukraine, and Belarus have increased substantially, with Russians accounting for by far the largest proportion. Anecdotal evidence suggests that migrants leaving Russia for Georgia are mostly professionals who are able to work remotely and are escaping Russia's domestic political risks as well as the restrictive effects of global sanctions. In some cases, businesses have been re-registered in Georgia.

"Georgia's economic growth has strengthened substantially this year. According to monthly real GDP estimates, over the first six months output expanded by 10.5% compared to the same period in 2021. This contrasts with our previous expectation that the Russia-Ukraine conflict would pose substantial near-term risks to Georgia's economic performance given its geographic, trade, and energy links with Russia. Although we expect the momentum to slow in the second half of 2022, we are revising upward our full year growth projection to 8% from the 4% projection we published in July (see "Sovereign Risk Indicators," published July 11, 2022) and the 5% we expected before the conflict broke out (see "Georgia Outlook Revised To Stable On Stronger Growth And Moderating External Imbalances; 'BB/B' Ratings Affirmed," Feb. 26, 2022). We also note that this year's strong growth comes after an already quick post-pandemic rebound during which output expanded by 10.4% last year, following a 6.8% contraction in 2020", - the report reads.

Despite the unexpectedly favorable short-term economic developments since the start of the Russia-Ukraine conflict, the outlook beyond 2022 is less certain with a number of downside risks. First, it remains unclear how many recent migrants will stay in Georgia for the longer term and how many will relocate to other destinations or return home. Georgia could also suffer from the effects of higher energy prices, inflation, and the rapid pace of monetary policy tightening around the globe. One possible transmission channel is cost-of-living pressure in Europe; given that around 10% of visitors to Georgia originate from the EU, pressures on disposable incomes could reduce consumers' purchasing power and potentially weaken demand for foreign travel. S&P therefore expects growth to slow next year to 3%, from 8% in 2022.

"In our view, Georgia's institutional settings are generally stronger than those in other countries in the region. The country has implemented key reforms in the 2000s, resulting in significant improvements in institutional checks and balances, quality of governance, and ease of doing business. We also consider that macroeconomic policymaking has been comparatively strong and has benefited Georgia over the past few years",- the report notes.