ISET | Business Confidence Index Q4 2020: Back to Despair
After a significant improvement in the previous quarter, the BCI has decreased by 18.7 points compared to Q3 2020 and reached -28.6. Expectations in the Georgian private sector have deteriorated by 62.5 index points, reaching a new historic low of -41.7. As for business performance over the past three months, they have increased slightly, reaching -40.4 points, related to a small upturn in production, turnover, and sales. Compared to the previous quarter, the Sales Price Expectation Index has increased, showing growth in the market share of business owners who anticipate increasing prices on their products.
The BCI decreased in most economic sectors, with the highest decline in construction (-81.8), followed by service (-24.9), manufacturing (-20.7), and agriculture (-9.5) sectors. Compared to Q3 2020, the BCI increased in the retail trade (27.7) and financial (0.3) sectors.
Business confidence in the fourth quarter of 2020 has decreased both for SMEs (-3.6), and large firms (-19.0).
PAST PERFORMANCE
The Business Past Performance Index, which shows the development of business production, turnover, and sales in the past three months, increased slightly further by 0.2 points compared to Q3 of 2020 and reached -40.4 for Q4 2020.
A significant deterioration in performance was observed in the construction sector (-131.7), followed by the manufacturing (-38.3), and agriculture (-29.9) sectors. An increase in past performance was observed in retail trade (59.7), financial (41.2), and service (10.6) sectors.
EXPECTATIONS
The Expectations Index decreased significantly by 62.5 index points for Q4 2020 and stopped at -41.7. Prospects for the next three months have deteriorated for every sector, except retail trade (30.6-point increase). The most significant decline is observed in the construction (-182.6), followed by manufacturing (-86.6), service (-85.5), financial (-43.8), and agriculture (-8.6) sectors.
Business expectations have, on the whole, decreased for both, large firms (-65.1) and SMEs (-32.2).
66% of the surveyed businesses do not expect any changes in employment over the next three months, however, 22% of firms stated that they would hire fewer employees in the future and only 11% think that they would hire more.
Only 21% of the firms surveyed expect the economic condition of their businesses to improve over the next three months. 37% do not predict any changes in the future, leaving 42% of businesses that believe their business conditions will worsen.
SALES PRICE EXPECTATIONS
The Sales Price Expectations Index increased from -8.3 points (Q3 2020) to 2.7 points for Q4 2020. The index increased in every sector, except service (1.9 points decrease) and agriculture (-12.5 points decrease). The overall Sales Price Expectations Index has increased for both SMEs and large companies.
Around 58% of all firms surveyed do not intend to change their prices over the next three months. 26% of firms expect to increase their prices, and the remaining 16% will consider decreasing their prices in the future.
A lack of demand and limited access to financing continues to be the most significant obstacles for both large companies and SMEs. For Q4 2020 access to finances and lack of demand became more important for both types of firms, especially for large companies (in the last four quarters, on average, 34% of large companies mentioned access to finances as a limiting factor, while, 30% mentioned lack of demand), which, together with an increased share of "other" factors could reflect the post-Covid-19 situation that business sector is currently facing.
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.