Business Optimism Turns to Realism


Overall, the BCI lost 2.0 points compared to Q2 2017. Expectations in the private sector in Georgia declined by 18.8 percentage points, and reached 44.3 index points (down from 63.1 points in Q2). Business performance over the past three months increased significantly, reaching nearly 33.5 points (increasing from 22.3), indicating an improvement in production/turnover/sales. However, the improved performance of the past three months could not outweigh decreased expectations, which led to insignificant drop in overall BCI.

The BCI index worsened in all sectors except retail trade (+6.1), agriculture (+ 9.3) and other (+3.7) sectors. The highest drop was recorded in the construction (-9.1) sector.

Past performance. The actual performance of businesses significantly increased compared to the second quarter of 2017. In the Q3 2017** reporting period, sales (production or turnover) of the 227 firms surveyed increased from 22.3 (Q2 2017) to 33.5 (Q3 2017).

The current situation for firms operating in the construction and retail trade sectors has improved significantly, meaning that in these sectors, the weighted balance between positive and negative responses increased compared to previous quarter (for more information, see Appendix 1). Service and other sectors have also experienced positive developments. In all other sectors, production/turnover/sales for the past three months worsened, albeit only slightly, with the highest drop recorded for the financial sector (-4.7).

Compared to the previous quarter, a higher share of surveyed firms (61%) stated that employment remained the same over the past three months. Fewer businesses reported either decreases or increases in employment. Moreover, 38% of firms claimed that their business activities remained unchanged over the past three months, while 43% of participants stated that they had improved their performance (which was an increase of 9 percentage points over the previous quarter).


The Expectations Index decreased by 18.8 index points in the third quarter of 2017. Expectations about the next three months worsened in all sectors. The highest decrease was reported in the agriculture and other sectors (for more information, see Appendix 1).

The pessimism of all sectors might have been driven by the end of the summer season, because economic agents generally revert to their normal spending behavior once their vacations are over.

As one can see from the table, business expectations for the three-month period July through September 2017 decreased for both SMEs and large size firms.

The majority (63%) of surveyed businesses do not expect any changes in employment over the next three months. Furthermore, 31% of firms stated that they would employ more employees in the future (which is lower compared to the previous quarter, by 2%). Meanwhile, 51% of the surveyed firms expected that the economic condition of their businesses would improve over the next three months, and 37% did not expect any changes in the future, while a slightly higher share of businesses expect their business conditions to worsen.    

Sales Prices Expectations.

The Sale Price Expectation Index slightly decreased from 7.6 points (Q2 2017), to 7.2 points (Q3 2017). The Sales Price Expectations Index for Q1 2017 had predicted realized hikes in price level recorded by Geostat. No significant further increase in prices is expected in the coming months.

The decrease in the index is driven by the Retail Trade and Service sectors. The Agriculture sector's sales price expectations have increased the most. The manufacturing, construction, and other sectors each expect a noticeable increase in prices in the next three months (for more information, see Appendix 1).

The overall Sales Price Expectations Index decreased for both large companies and SMEs.

The majority (78%) of all surveyed firms are not going to change the prices they charge over the next three months. Only 6% of firms expect to decrease prices, and 16% expect to increase prices in the future.

Limiting Factors

Lower consumption activities and lack of access to financing are two of the most significant problems for businesses. One of the most limiting factors in doing business for both large firms and SMEs in Q3 2017 was lack of demand. Moreover, a total of 17% of large companies and 32% of SMEs noted that lack of access to finance was their main obstacle.

Methodology. The ISET Policy Institute, working in partnership with the International Chamber of Commerce in Georgia (ICC), has implemented the Business Confidence Survey since December 2013 and publishes the Business Confidence Index (BCI) on a quarterly basis.

The confidence is measured through a simple survey instrument targeted at top business executives. The survey is online. Answers obtained from the surveys are aggregated in the form of “balances”. Balances are constructed as the difference between the percentage of respondents giving positive and negative replies.

The methodology for compiling the indices is based on the Joint Harmonised EU Programme of Business and Consumer Surveys. 


26 September 2017 09:20