Confidence is retreating after a recovery that lasted about 6 months. Last month, in spite of a slight decline of the CCI, we could hold on to the belief that we had reached a plateau in the recovery from the low numbers observed last April. We were hoping for stabilization, if not a continuation, of the positive trend observed since then. The December numbers leave us with no illusion. The index dropped by 5.5 index points and the pattern is similar for both sub-indices: the Present Situation Index went down by 5.4 (from -38.3 to -43.7) and the Expectations Index by 5.6 (from -30.1 to -35.7) as can be seen from Chart 1.

What happened? Obviously, the COVID Pandemic has disrupted New Year celebrations in Georgia and that has soured moods. More substantially, however, the daily cases have continued to range from 2,000 to 5,000 and this led to the decision by the Interagency Coordinating Council to maintain the same level of restrictions, contrary to what was initially announced. Public transport did not resume working after December 24th and bazaars remained largely closed (except for agrarian bazaars). Restrictions on trading activities bear an important social cost in Georgia and the continuation of restrictions affects a substantial part of the population: the retail and wholesale trade sector employs more than 15% of total employment.¹

The continuation of COVID restrictions has affected everybody but some more than others. Unlike last month, the Consumer confidence index has deteriorated more outside the capital city than in Tbilisi (see Chart 2). We have not conducted an analysis of the reasons why it is so, but we conjecture that the increase in wheat prices at the end of November has played a role. Indeed, as the COVID pandemic continues, countries have started to hoard wheat, boosting global demand by 30%: while in September, the price of one tone of wheat was $200, it was exceeding $250 two months later. It is important because in rural areas, households bake bread for themselves. In Tbilisi, they buy from shops that get the bread from factories subsidized by the government. The impact was less severe, in particular for ‘social bread.’ To that, one should of course add a seasonal factor: farmers’ income tends to decline in winter and that typically gets reflected in the CCI by a slower increase or sharper decline of the index around December. This piled on the COVID this year.

BAR CHARTS: CONSUMER RESPONSES BY QUESTIONS

1. Source: National Statistics Office of Georgia
2. Social bread is the cheapest bread available.