Issue 6, 2012. December-January

   

ISET: A STUDY OF CONSUMER SPENDING

Georgian consumer confidence is shooting up, but so are prices

ISET Staff

Our Consumer Confidence Survey was conducted in the third week of October, capturing the effect of higher bread prices and elections. These two events may have worked in opposite directions, partially cancelling each other out, yet the overall effect is positive, especially as far as expectations are concerned. The sharp improvement of almost 8 percentage points in the Consumer "Expectations Index" (from -6.8% in September to +1% in October) is a sign that the Georgian public is welcoming the first orderly and peaceful democratic transition in Georgia's modern history. Expectations regarding personal financial standing have, for the first time, crossed into positive territory. The "Present Situation Index" remained without change (-17% compared to -16.8% in September). The overall Consumer Confidence Index did not improve as much, climbing from -11.8% in September to -8% in October 2012. Still, this is the highest level reached by the index since its launch in May 2012.


CCI: Tbilisi vs. the Rest of Georgia

As Georgia is far from homogeneous, it may be useful to see how people's perceptions of the recent changes in economic and political realities vary across the different strata of the country's population.

As could be expected, the (positive) impact of elections is more pronounced in Tbilisi relative to the (negative) impact of higher bread prices. This is quite consistent to what we know about Tbilisi. First, it predominately voted for Georgian Dream. Second, it is quite a bit wealthier than the rest of Georgia, spending less on food as a share of income, and - as a result - suffering less from food inflation and the hike in flour and bread prices.

The overall Consumer Confidence Index (CCI) took the value of -1.9% for Tbilisi and -12.4% for the rest of Georgia. Tbilisi now exceeds the rest of Georgia on almost all CCI parameters, but the differences are most pronounced as far as the likelihood of making major purchases and the ability to save are concerned.

Tbilisi residents are much more confident that now is the time to save and make major purchases. They are also more certain about their ability to save and make such purchases in the future Still, saving capacity remains a major weakness for all Georgians, regardless of age, gender, type of settlement and education.

Outside Tbilisi, people seem to have no hopes (or illusions) concerning the new government's ability to quickly generate change and turn around the difficult economic situation. As far as the non-Tbilisi population is concerned, there was very little change in nine out of 12 consumer confidence parameters. In particular, there was no change concerning expectations. Moreover, if anything, the changes in sentiment we do observe are negative, perhaps influenced by the recent bread and flour price hikes. People tend to think that, compared to September, now is a less appropriate time to make major purchases or save. They also became somewhat more negative in their assessment of the change in Georgia's general economic situation over the past 12 months.


CCI and Education

Our sample includes individuals with different educational attainment, giving us the ability to relate consumer confidence indicators to the respondents' educational background. The differences in CCI for the more and less educated strata of the population are both striking in the case of Tbilisi vs. rest-of-Georgia comparison. The better educated Georgians are much more confident that now is a good time to save and make significant purchases. They are also more confident about their ability to save and make such purchases in the future.

The better educated Georgians report a strong improvement from September to October in almost all parameters of consumer confidence, while there was very little, if any, improvement in confidence amongst the less educated population.

The International School of Economics was founded at Tbilisi State University in 2006 through a unique collaborative effort of the World Bank, BP, Open Society Institute, and the governments of Georgia, Germany, Sweden and Norway. ISET offers a two-year Master's Program in Economics, serving Armenia, Azerbaijan and Georgia. The ISET Policy Institute (www.iset-pi.ge) is one of the first university-based think-tanks in the South Caucasus, affiliated with ISET. ISET-PI's activities comprise research and training focusing on economic policy. ISET-PI policy priorities include agricultural economics, energy economics, economics of human resource (health, education, and labor markets), trade policy, macroeconomic policy and economic growth.