02.Sep .2019 17:46

Business confidence index dropped by 18.7 points in third quarter of 2019

Business confidence index dropped by 18.7 points in third quarter of 2019
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• BCI in the third quarter of 2019 has deteriorated, dropping to 8.3 index points, which is 18.7 index points below the previous quarter. The largest reduction in BCI was observed in retail trade followed by the financial and construction industries. In these sectors, the decrease in BCI is driven by both decline in past performance and reduced expectations. On the contrary, agriculture is the sole industry where BCI increased.

• The Past Performance Index, which reflects businesses' assessment of their own economic performance in the previous quarter, showed a downward trend, decreasing by 23.5 points in Q3 2019.

• Business optimism decreased significantly after a recent improvement in the previous quarter and dropped to 21.7 index points. Other than retail trade, service and construction have contributed the most to this reduction in business optimism. Expectations have increased only in agriculture.

• The Sales Price Expectation Index decreased moderately. Businesses in service and manufacturing predict lower prices compared to the previous quarter, while other sectors expect higher prices.

• Expectations worsened for large businesses as well as for SMEs, while past performance decreased for large businesses and moderately improved for SMEs.

• The main factor that continues to limit business activities for large businesses is lack of demand, while for SMEs the limiting factor is access to finance.

Overall, BCI has declined by 18.7 points compared to Q2 2019. Expectations in the private sector in Georgia decreased significantly by 23.7 index points, dropping to 21.7 index points. Business performance over the past three months decreased as well, reaching nearly 0 points (down from 23.0), indicating a downturn in production/turnover/sales. Thus, reductions in both business expectations and past performance have led to a fall in the overall BCI.

BCI decreased in almost all economic sectors, namely in the retail trade (-45.5), financial (-24.4), construction (-21.5), manufacturing (-19.0) and service (-16.6) sectors. The  exception was in agriculture, in which the BCI improved by 41.8 index points.

Business confidence in the third quarter of 2019 dropped for both large firms (-20.2) and for SMEs (-1.9).

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.

The Business Confidence Index is measured on a scale of [-100; 100] points. The size of the index indicates a weighted balance between the respondents giving positive and negative replies. A confidence index of 100 would indicate that all firms in the sample reported a positive outlook. An index of zero would indicate that the weighted balance of positive and negative views reported by firms is about equal or, alternatively, that all firms reported no change in the current business situation (for more details, see the methodological notes).

Source - Iset