December is a month when consumer confidence normally decreases. This is to be expected as the Christmas and New Year shopping period is one of the most expensive of the year. In 2014 the situation has not been much different, aside from the fact that the economy has experienced several economic fluctuations. The depreciation of the lari, as recently discussed in the ISET Economist’s Blog, must be one of the reasons for the large decrease in consumer confidence, but another cause might be the decrease in remittances from abroad. In November, a 16% fall was observed in money transfers – especially for remittances from Russia, which saw a 30% decrease compared to November 2013. This might be one of the primary drivers of the CCI decrease. The answers the respondents gave to the different questions supports this idea. More people responded that prices have increased and the economic situation has become worse in the country. Although both the Present Situation and Expectations indices have decreased overall, the expectations of respondents from Tbilisi shows the opposite pattern. The overall CCI has decreased to -22.5 points (down by 4.0 points from November). The Present Situation index had a sharp decrease to -26.4 (down by 5.9 points) and was the main driver of the overall decrease in consumer confidence. The Expectations index also decreased to -18.5 (down by 2.2 points), but its decline was much smaller than that of the Present Situation index.

Comparing the results to December 2013 does not improve the picture. The overall CCI has decreased by 16.9 points. Considering the monthly context (that the CCI normally decreases in December), such a drop is extensive. The Present Situation index has decreased by 17.2 points, while the Expectations index shows a slightly smaller decrease of 16.6 points. The main reason for such a large annual decline of the CCI and its components could be the decrease of remittances in November – a time when people generally start accumulating their money for expensive New Year’s shopping.

A few things to note:

• Past experience of this study shows that consumer confidence tends to sharply drop in December (it was down by 6.8 points and 4.2 points in December 2012 and December 2013 respectively). This year’s fall is not the largest for the CCI of this period, but for the third time in 2014 the index is at its lowest historic value. Moreover, the Present Situation index has shown a larger decrease compared to the Expectations index, which might be due to the decrease in remittances.

• Looking at the overall answers of our respondents, the main drivers of the fall in the CCI are those given in response to questions on the current and expected financial situation. To the question concerning the change in the financial situation of households in December, 35% of the respondents answered that it had become worse, while 28% gave the same answer in November. Furthermore 40% answered that general economic situation in the country had worsened, while 24% gave the same answer a month earlier. Considering the seasonal growth in prices, more people stated that prices have increased over the last 12 months. In December, 89% said that prices have risen, while 77% gave the same answer in the previous month.

• As is typical for the season, slightly fewer respondents thought that it was a good time to save and more respondents thought that it was a good moment for major purchases. A total of 30% of people responded that December was a good moment to save whereas 37% gave the same answer a month earlier. In contrast, 41% thought that it was a good time to make major purchases, while 32% gave the same answer in November.

• Looking at different educational groups, answers to the question as to whether it is a good time to save changed significantly for people with higher education. In December, 31% of those with higher education thought that it was a good moment to save, while 45% thought the same in November. Taking into account the seasonal pattern, this is normal. However, over the month there was no significant change in the answers of respondents without higher education.

• From the gender perspective, both males and females thought that prices had risen over the last 12 months. Although fewer male respondents (around 84%) thought that prices had risen, as compared to female respondents (around 91%). Considering that CPI inflation is around 3%, which is not very large, it seems that women are more pessimistic about prices. Interestingly, the same percentage of males and females, around 41%, thought that December was the right moment to make major purchases, while 32% thought the same in the previous month. Both genders are likely anticipating New Year sales, which might be the reason for having given the same answers.

Regional Peculiarities

Overall consumer confidence has shown a larger decrease in the rest of Georgia (RoG) than in Tbilisi. The CCI has fallen by 1.2 points in Tbilisi (reaching -21.9 points) and by 5.7 points in the RoG (reaching -22.8 points). The pattern of this decline was sustained for the Present Situations index, which reached -24.4 points in Tbilisi (down by 4.9 points) and -27.7 points in the rest of Georgia (down by 6.5 points). On the contrary, the Expectations index moved in different directions for Tbilisi and the RoG. Expectations increased by 2.6 points for Tbilisi (reaching -19.4 points) and decreased by 4.9 points in the rest of Georgia (reaching -17.9 points). The large difference in the Expectations index between Tbilisi and the RoG, which has been sustained since September, significantly shrunk in December. The decrease in expectations for the RoG might have been caused by a depreciation of the GEL and a fall in remittances (especially from Russia). It is important to note that despite the causality between remittances and the exchange rate, we see two separate effects for people who get money transfers from relatives abroad. On the one hand, due to the fall in remittances people receive less from their relatives; on the other hand, they can exchange what they receive for more GEL. In the case of stable prices there might even be some gains for those who received USD. In contrast, for the population in the RoG, whose income depends on agriculture and who receive their income in GEL, depreciation is a sign of increasing prices on imported goods and therefore of worsened economic conditions. This explains the opposite movement of expectations in Tbilisi and the rest of Georgia.

Looking at the responses given to separate questions supports the above cited differences in the components of consumer confidence for Tbilisi and the RoG. In December, to the question “How do you expect prices will change in next 12 months?” 57% of respondents from Tbilisi answered that they would increase, while 66% gave the same response in November. In contrast, 62% of respondents from the RoG expect increasing prices, while 52% thought the same a month earlier. The seasonal effect due to the Christmas and New Year preparations has an important effect as well. In both Tbilisi and the RoG respondents were saying that it was the right moment for making major purchases. In Tbilisi, 40% gave a positive answer, while 35% thought the same a month earlier. The increase in the same responses is larger for the RoG, which rose to 41% from 30% in November. Furthermore, in both Tbilisi and the RoG people anticipate that the general economic situation will worsen over the next twelve months. In Tbilisi, 41% of respondents thought that the economic situation will get worse, while only 27% thought so in the previous month. In the RoG expectations have declined even more, with 39% thinking that the economic situation will get worse, while 22% had the same expectations in November. Furthermore, in Tbilisi 32% of respondents thought that it was a good moment to save in December, while 44% thought so in November. Lastly, to the question “How do you think that prices have changed over the last 12 months?” 89% of respondents in the RoG thought that prices had increased in December, while 75% thought so the month earlier.