Georgia's Economy Faces a Hit

LONDON -- The Georgian economy is likely to slow from near double-digit growth this year because of its conflict with Russia, a European Bank for Reconstruction and Development official said Monday.

Michael Davey, the EBRD's director for the Caucasus, Moldova and Belarus, said it was too soon to estimate the impact on the Georgian economy but said a prolonged war would be disastrous.

He said that if recent events led to a resolution of Georgia's long-lingering border disputes with Russia, however, this could make the country more appealing to foreign investors than before.

"[A prolonged war] would be disastrous because the government has been very successful at turning an unappealing investment destination into an attractive one, and if that was undone it would be a serious setback," he said.

Georgia's economy grew 9.3 percent in the year to March, the Economic Development Ministry said in July, a fall from 11.4 percent the year before.

"The frozen conflict in South Ossetia has always been a worry for foreign investors in Georgia and if that is ultimately removed as a result of this, it could become more appealing," Davey said. "If there is a final conclusion then the slowdown may not be that pronounced ... but there will be one."

The conflict could affect other regional countries, particularly Armenia and Azerbaijan, because of a transportation disruption, but goods continued to move through Georgia, he said.