In September 2015, the consumer confidence index experienced another drop of 2 points, crossing the -40 points margin to reach yet another historical minimum of -40.4 points. Responses to the question about making major purchases was the primary driver of this relatively modest decrease.

Both components of CCI followed a similar course of development, however the expectations index decreased more modestly than its counterpart. The present situation index crossed the -50 point threshold to reach -50.3 points (falling by 3.4 points). In contrast, the expectations index breached the -30 point level to reach -30.5 points (a fall of 0.5 points). The gap between indices has increased to a roughly 20 point difference.

The decrease in the overall index was primarily driven by answers to two questions: (i) the evaluation of the general economic situation – with responses suggesting that it had significantly worsened (the share of those reporting a significant worsening increased to 46.9% from 36% in August); and (ii) the evaluation of whether it was a good time to make major purchases (the share of people thinking that it was a bad time for such purchases increased to 47.2% from 38.5% in August). Despite the very pessimistic picture painted by these answers, economic growth in August stood at 2.8%, making Georgia a leader in the region.

Fluctuations on the currency exchange market continued in September with another wave of panic and depreciation, bringing the national currency to its lowest point since 1999. The depreciation has been accompanied with political squabbling and accusations – a subject recently discussed in our blog Confidence Matters! As stated in the blog, the September CCI partly reflects the effect of negative information campaigning as well as a certain amount of seasonality. The excellent grape harvest was accompanied by a collapse of grape prices, causing the expectations index to move in opposite directions in Tbilisi (up) and the rest of the country (down).

September’s consumer confidence index clearly suggests that the Georgian public is not in a shopping mood. The current weakness in demand has the effect of binding businesses not to increase prices in response to depreciation, as confirmed by ISET’s latest business confidence survey.

Any measures to stimulate demand at this time might prove to be a double edged sword as they would inevitably foster demand on imported goods, putting additional pressure on the currency exchange rate. In the absence of an effective short-term solution to this problem, the best option is for the government to lay low and weather the storm. 

REGIONAL AND AGE-RELATED PECULIARITIES

The overall CCI reached its minimum in both Tbilisi and the rest of Georgia (RoG). The index decreased in Tbilisi by an insignificant 0.3 points, reaching -38.7 points, and fell by 3 points in the RoG, reaching -41.4 points. While the present situation index decreased at a similar magnitude for both Tbilisi and the RoG, the expectations index moved in opposite directions, with a 2.7 point increase in Tbilisi and a 2.1 point fall in the RoG.

Tbilisi consumers are mainly concerned about the general economic situation and their ability to make major purchases, however they seem to a bit more relaxed about future inflation.

• The share of those who thought that the general economic situation got a lot worse grew to 48.5%, compared to 37.1% in August.
• The share of those who thought that it was not the right time for major purchases grew to 40.9% from 31% in August.
• The share of those expecting prices to increase more rapidly in the coming 12 months decreased to 19.7% from 25.9% in August.

In the Rest of Georgia (RoG) the primary concerns were past changes in the financial position of households, the general economic situation in the country, ability to make major purchases and expected inflation.

• The share of those saying that their household’s financial position had got a lot worse grew to 41.1% from 31.2% in August.
• The share of those saying that the general economic situation in the country had got a lot worse during the past 12 months increased to 45.9% from 35.4% in August.
• The share of those who thought that it was not the right time for major purchases grew to 51.2% from 42.2% in August.
• The share of those expecting prices to increase more rapidly in the coming 12 months increased to 29% from 20.3% in August.

An interesting pattern of the CCI in September 2015 is that the expectations index increased (by 2.1 points) for respondents with higher education and decreased (by 2.7 points) for those without. This was driven by answers regarding the expected change in the general economic situation. The number of people with higher education that expected the general economic situation to get a lot worse decreased to 16.6% from 22.4% in August. In contrast, in September, 23.4% of respondents without higher education expected the general economic situation to worsen a lot, compared to 13.9% who gave the same answer in August.