ISET Business Confidence Index Q2 2020: Businesses in the Lockdown
After a recovery in the previous quarter, the BCI has decreased drastically, by 53.0 points, compared to Q1 2020 and reached an all-time low at -27.2. Expectations in the Georgian private sector declined by 84.1 index points, dropping to -41.4. Moreover, business performance over the past three months has also decreased, reaching -26.1 points, indicating a significant downturn in production, turnover, and sales. Compared to the previous quarter, the Sales Price Expectation Index has decreased as well, showing growth in the market share of business owners who expect lower sales prices.
The BCI decreased in every economic sector, with the highest decline in retail trade (-69.8), followed by service (-64.7), financial (-39.7), construction (-30.9) and agriculture (-30.8). The lowest decrease is seen in the manufacturing sector (-11.0)
Business confidence in the second quarter of 2020 has decreased significantly both for SMEs (-47.2), and large firms (-54.0).
PAST PERFORMANCE
Businesses’ Past Performance Index, which shows the development of businesses' production, turnover, and sales in the past 3 months, decreased significantly by 55.5 points compared to Q1 of 2020 and reached its historic low of -26.31 in Q2 2020.
A significant deterioration in performance was observed in the service sector (-75.2), followed by the agriculture (-62.8), retail trade (-55.2) and financial (-49.6) sectors. The smallest decrease in past performance is observed in the manufacturing (-16.9) sector. The substantial decline in these sectors highlights that the weighted balance between positive and negative responses decreased compared to the previous quarter.
EXPECTATIONS
The Expectations Index deteriorated drastically by -84.1 index points in Q2 2020 and stopped at -41.4. Prospects for the next three months have worsened for every sector. The most significant decrease is observed in retail trade (-134), followed by the financial (-96.7), service (-80.8), agriculture (-78.3) and construction (-55.7) sectors. The smallest decline is observed in manufacturing sector (-8.4). Business expectations have, on the whole, decreased for both large firms (-87.5) and SMEs (-80.3).
52% of the surveyed businesses do not expect any changes in employment over the next three months, however, 41% of firms stated that they would hire fewer employees in the future and only 7% think that they would hire more.
69% of the firms surveyed expect the economic condition of their businesses to worsen over the next three months. 19% do not predict any changes in the future, leaving a small proportion (12%) of businesses that believe their business conditions will improve.
SALES PRICE EXPECTATIONS
The Sales Price Expectations Index decreased from 18.6 points (Q1 2020) to -5.3 points in Q2 2020. This decline is driven by the construction, retail trade, and service sectors. The overall Sales Price Expectations Index has decreased for both SMEs and large companies.
Around 41% of all firms surveyed do not intend to change their prices over the next three months. 24% of firms expect to decrease their prices, and the remaining 35% will consider increasing their prices in the future.
A lack of demand and limited access to financing continue to be the most significant obstacles for both large companies and SMEs. In Q2 2020, "other" factors also became a further hindrance for both large companies and SMEs. As “other” factors have been significantly less important in the past (mentioned by 16% of large companies and 14% of SMEs on average in the last four quarters), the sudden increase could indicate a link to the government’s state of emergency constraints due to COVID-19.
It should be noted that the present BCI results may be overestimated, as the survey only covers businesses currently operating and not those that have already exited the market. Firms, which exited the market are, to some extent, more likely to demonstrate a negative outlook.