According to a nationally representative sample of 341 Georgians interviewed in late February 2019, the Consumer Confidence Index (CCI) dropped by 1.7 index points, from -17.5 in January to -19.2 in February. This dip was driven by the Present Situation Index, which fell from -19.5 to -23.8. The Expectations Index instead rose by 2.9 index points (from -17.5 to -14.6) compared to January.  Apparently, the end of the winter blues had a positive effect on Georgian consumers’ expectations about the future in a context in which the Present Situation Index deteriorated for the first time in three months.

What could be the reason for the fall in the Present Situation Index? The general economic situation might not necessarily be the main culprit. In January, according to the Georgian Statistics Office, GDP growth was 3.5% compared to January 2018, and there is currently no indication of a dramatic deterioration in February (although data for February are not accessible yet). Still, not everything went smoothly in the economy: the implementation of restrictive lending regulations in January affected both consumers and the private sector. For example, home appliance shops report that since the introduction of the regulations, the decrease in sales varied from 10% up to 50%, depending on the share of loan-based sales.^[1] Moreover, according to the National Bank of Georgia, in January 2019, compared to the previous month, the volume of lending by commercial banks decreased by 170.2 million GEL or by 0.6 percent. Loans to resident individuals (in our case, consumers) decreased more than to resident legal entities, as expected (1% decrease versus 0.4%).^[2] There is some indication that the effect of the new regulations may indeed be associated with the evolution of our CCI. When looking at the monthly change in CCI index points (February compared to January) by survey questions and groups, it is clear that people have become more concerned about making major purchases (see table 1).

Table 1: Monthly change in Consumer Confidence (in index points), in groups by questions: February 2019

Non-economic factors might also be responsible for the decrease in CCI. In February, TV and other media channels were bombarding their audiences with negative news. Firstly, a lot of controversies and criticism emerged around 10 judges nominated for the Georgian Supreme Court, which might have negatively affected Georgians’ perception of the impartiality and quality of their judiciary. Secondly, the case of TBC bank and its founders went viral. The case was and still is largely politicized, once again putting the judicial system into question. The messages being spread also refer to a political crisis and deteriorated business environment, which is supposed to eventually be reflected in the economy.

What can the connection between these events and consumer confidence be? Research by Wendy Johnston and Graham Davey (1997) ³ investigated the effect of the emotional content of television news programs on mood and the catastrophizing of personal worries. The results of the research revealed that those who watched negative news such as crime, violence, political unrest, injustice, etc. showed increases in pessimism and a significant increase in the tendency to catastrophize a personal worry.

Thus, bad news might have found its reflection in consumer confidence, together with the increased difficulty in obtaining bank loans. One final question concerns the improvement of the Expectations Index, despite the factors mentioned above. While at first sight, this might seem contradictory, there are at least two factors that could justify this pattern. First, expectations tend to react differently, timewise, with respect to the description of the current state. If, for example, the effect of the restrictions on loans had been anticipated correctly by the consumers in previous months, there would not be a need for further deterioration in the Expectations Index now. Second, the fact that the Expectations Index improved does not exclude an impact of negative news and regulatory changes. It is always possible that, without this factor, the index might have improved even more.

MONTHLY AND YEARLY CHANGES IN THE CCI VARIABLES

BAR CHARTS: CONSUMER RESPONSES BY QUESTIONS

[1] http://www.bm.ge/ka/article/teqnikis-magaziebshi-sabanko-ganvadebis-gzit-gayidvebi-shemcirda/19525

[2] ]https://www.nbg.gov.ge/index.php?m=340&newsid=3600&lng=eng

[3] Johnston, W.M. and Davey, G.C., 1997. The psychological impact of negative TV news bulletins: The catastrophizing of personal worries. British Journal of Psychology, 88 (1), pp.85-91.