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Icelandic Financial Market Digest 28. júní

Publisher: Íslandsbanki Research • Resp.Editor: Ingólfur Bender

Consumer sentiment more moderate in Q2

Icelandic consumers’ declining expectations concerning economic and labour market developments and prospects suggest that private consumption growth will ease in coming quarters.  Icelanders appear less inclined to buy motor vehicles in the near future than they have been in the recent past, whereas a greater number than before are planning to buy a home.  

The newly published Gallup Consumer Confidence Index (CCI) for June measured 104.1 points, its lowest reading since autumn 2015.  The 3-point month-on-month drop in the CCI is due in large part to more muted expectations about the economic and labour market situation six months ahead, whereas the assessment of the current situation remains very strong.  The interplay between these two sub-indices gives a relatively clear signal that Icelandic consumers believe the business cycle has reached half-time: good times prevail, but prospects for the near future have dimmed somewhat.  

Movements in the CCI correlate well with developments in medium-term private consumption.  In Q2, the average CCI value was 109.2, the lowest such measure since Q3/2015.  This, together with other recent indicators relating to private consumption, suggest to us that private consumption growth is easing and will turn out weaker in 2018 than in the previous two years. 

More home buyers, fewer car buyers

Gallup has also published its most recent quarterly “big-ticket” index of consumers’ major purchase plans. Overall, the big-ticket index measured just over 68 points, nearly 4 points less than at the same time a year ago.  Even so, the measurement is relatively high in historical context. 

The sub-index for planned home purchases rose by 0.7 points, to 8.7, its highest value since Q1/2017.  In all, 6% of respondents consider it likely that they will buy a home in the coming twelve months.  House price inflation has abated significantly since last summer, but this uptick in the house purchase component of the big-ticket index could suggest that the market is warming up again, at least as regards turnover. 

The sub-index for planned overseas travel declined slightly between measurements, yet 77% of Icelanders still consider it likely that they will travel abroad in the next twelve months. 

And finally, the sub-index for planned motor vehicle purchases was unchanged from the previous measurement, which was its lowest since Q3/2016.  Some 15% of respondents expect to buy a car in the coming months, according to the Gallup survey.  Motor vehicle sales have boomed in the past few years, but sales growth has eased in 2018 to date.  


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