The Inflationary Effect of Geopolitical Risks and Economic Growth

Abstract

In recent years, geopolitical risks have become a major factor influencing the dynamics of the global economy and trade. Unfavorable geopolitical events in global markets become the catalyst for significant fluctuations, which leads to a decrease in economic activity, affects inflation, which can lead to price changes. Geopolitical risks and inflation are interconnected. Geopolitical tensions can affect the state of the economy, macroeconomic indicators and lead to an increase in inflation. During geopolitical risks, investors believe that the country is unstable and begin to withdraw their assets. This will certainly lead to a depreciation of the currency and an increase in imported goods. In Georgia and similar developing countries, geopolitical risks have a significant impact on inflation rates. Georgia's main trading partners are China, the European Union, Russia, and Turkey. The deterioration of geopolitical relations with the above-mentioned countries affects exports and imports, which in turn affects inflation.