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Icelandic Financial Market Digest 29. mars

Publisher: Íslandsbanki Research • Resp.Editor: Ingólfur Bender

Consumers buoyant in March

According to figures published his morning by Gallup, the Gallup Consumer Confidence Index (CCI) rose by 3.5 points between February and March, to 129.2, the third-highest March measurement ever recorded. This suggests that Icelandic consumers are generally upbeat, as a 100-point index value indicates parity between pessimists and optimists. The CCI value is well in line with the current economic upswing and the overall improvement in households’ financial position. 

Consumers have seldom been more satisfied with the current situation

The Gallup survey shows that not only are households highly satisfied with the current situation, they are optimistic about the future as well. The index component reflecting consumers’ assessment of the current situation rose by 4.9 points between monthly measurements, to 153.4, which is extremely high in historical context (see the chart below). Furthermore, a majority of respondents think things will be even better in six months, as this component of the CCI rose by 2.5 points between measurements, to 113.1. 

Major purchase index rises

Concurrent with the CCI, Gallup also published the Q1/2017 results of its quarterly survey of consumers’ major purchase plans. In a marked change, the major purchase index rose 5.4 points from the previous quarter and 8.9 points year-on-year. It now stands at 72.2 points, well above the long-term average of 60.1, as the chart below illustrates. 

Exchange rate developments catalyse car purchases and travel

Developments in components of the major purchase index varied somewhat, but the index as a whole suggests that private consumption will grow rather strongly in the near term.  First of all, the component for motor vehicle purchases shot up by 9.7 points, to 36.0, its highest since Q2/2007, and is now well above its long-term average of 24.7. About a fifth of Icelanders are considering buying a car in coming months. Presumably the strength of the ISK is a factor here, given that it has lowered car prices significantly.
 
The ISK appreciation also affects the overseas travel component. The strong ISK has made staying abroad even more affordable than before, and increased competition among airlines has pushed airfares downwards and greatly increased the number of destinations on offer. This index component rose by 7.6 points between quarters, to 171.5 points. It, too, is close to an all-time high, and is far above its long-term average. In all, 78% of Icelanders plan to travel abroad in the next year.
 
The third component declined, diverging from the other two, and is now somewhat below its long-term average. This is the planned home purchase component, which fell 1.4 points to the current 9.0. This sub-index has been somewhat volatile in recent measurements, though, so it is prudent to take the current numbers with a grain or two of salt. That said, it is not inappropriate to wonder whether the recent spike in house prices has begun to affect the willingness and ability of some Icelanders to move into larger housing and/or prompted those considering selling and moving into a smaller home to wait and see how prices develop in the future. 

 

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