Persistent Pessimism!
Overall, the BCI lost 7.4 points compared to Q4 2018. Expectations in the private sector in Georgia decreased by 13.8 percentage points, dropping to 36.3 index points (from 50.1 points in Q4). Business performance over the past three months decreased, reaching nearly 24.4 points (down from 28.0), indicating a downturn in production/turnover/sales. The combination of worsening performance in the past three months and lower expectations have led to a drop in the overall BCI.
The BCI index worsened in the construction (-0.1), retail trade (-11.5), service (-24.0) and agriculture (-5.4) sectors. The manufacturing and financial sectors improved by 38.6 and 26.1 points respectively. Business confidence in the first quarter of 2019 decreased for both large firms (-9.0) and for SMEs (-0.4).
Past performance. Businesses’ actual performance decreased by -3.6 compared to Q4 of 2018. In the Q1 2019 reporting period, sales (production or turnover) of the 160 firms surveyed decreased from 28.0 (Q4 2018) to 24.4 (Q1 2019).
A significant decrease in performance was observed in the service (-17.8), retail trade (-14.9), agriculture (-13.3) and construction (-4.0) sectors. A significant decrease means that in these sectors, the weighted balance between positive and negative responses decreased compared to the previous quarter. In the remaining two sectors, production/turnover/sales for the past three months improved: manufacturing (+43.3) and financial (+34.4) sectors.
Expectations.
The Expectations Index decreased by 13.8 index points in Q1 2019. Expectations about the next three months improved only for the financial (+47.8) and construction (+25.4) sectors. The remaining sectors expect a worsening of the situation. The greatest decreases were reported in the agriculture and retail trade sectors.
The majority (58%) of surveyed businesses do not expect any changes in employment over the next three months. Furthermore, 29% of firms stated that they would employ more employees in the future.
49% of the surveyed firms expected that the economic condition of their businesses would improve over the next three months, and 38% did not expect any changes in the future, while a lower share of businesses expect their business conditions to worsen.
Sales Price Expectations.
The Sales Price Expectations Index decreased from 17.5 points (Q4 2018) to 12.8 points (Q1 2019). The reduction in the index is mostly driven by a decrease in the retail trade and service sectors. The manufacturing, construction, and agriculture sectors expect a noticeable increase in prices over the next three months.
The majority (71%) of all surveyed firms are not going to change the prices they charge over the next three months. Only 7% of firms expect to decrease prices, and 22% expect to increase prices in the future.
The low level of consumption activities and lack of access to financing continue to be two of the most significant obstacles for businesses. 27.3% of large-sized firms and 46.4% of SMEs noted that lack of demand was their main obstacle. Meanwhile, 18.2% of large firms and 39.3% of SMEs chose access to finance as the main limiting factor for further business development.
It should be noted that the BCI results presented here may be overestimated, as the survey only covers businesses currently operating and not those that have already exited the market. Firms still in operation are, to some extent, more likely to have a negative outlook.