Economic expectations six months ahead have plunged

All CCI subcomponents except one fell between measurements. The single sub-index that has risen is the assessment of the current situation, which increased by 5.5 points and is now above equilibrium, at 103 points. This particular index component is at its highest since December 2022. On the other hand, the subcomponent for expectations six months ahead has fallen by over 27 points between measurements, to 86 points. This is its lowest value since September 2024.

The sub-indices for employment expectations and the assessment of current economic conditions and prospects are also down month-on-month. The former has fallen more than 8 points but, at 104, is still above the 100-point parity threshold. The latter has dropped by nearly 18 points between measurements and now stands at 70 points.

Trump's tariffs affect expectations

This month’s measurement represents an intriguing reversal of the CCI and most of its subcomponents. It is difficult not to conclude that the US administration’s announcements of sweeping tariffs has a material impact on this seismic shift in expectations overall, and particularly on the outlook six months ahead. It should be borne in mind that the week-long CCI measurement period began on the day the US government announced the tariff hikes, and this alone could have had significant bearing on the survey results.

Nevertheless, two subcomponents — the assessment of the current situation and expectations about employment — remain above the equilibrium threshold. Households appear relatively sanguine about the current economic situation but are concerned about the near-term outlook. Even though expectations about the employment situation have grown more muted between months, they are still above equilibrium, and while households are less optimistic than before, they appear to consider the job market acceptable. This accords well with the situation in the labour market itself, which is growing healthier after a period of significant tightness and low unemployment.

Private consumption growing despite uncertainty

Households’ expectations provide quite an accurate indicator of their position, and there is often a strong correlation between the CCI and developments in private consumption. Nevertheless, it is wise to avoid drawing sweeping conclusions from individual monthly readings, which in the case of this April’s measurements may well have been strongly affected by the newly announced US tariffs. It is commonly the case, however, that expectations drop sharply during periods of elevated uncertainty, and prospects for world trade are indeed quite cloudy at present. Furthermore, developments in Iceland align well with comparable expectations measurements abroad, including in the US and Europe, where declines have been observed widely. This abrupt change in the world trade environment will surely affect Iceland, but we consider it highly likely that the blow to the domestic economy will not be significant. It will be interesting to keep abreast of expectations in the coming term, but we think they are likely to rebound in coming months

In spite of this newly measured plunge in household expectations, we anticipate that private consumption will pick up this year. In our January macroeconomic forecast, we projected year-2025 private consumption growth at 2.7%. Households’ financial position is strong, and the saving rate is high. Payment card turnover has grown in real terms in 2025, and we expect real wage gains to continue. These factors suggest that private consumption will grow in the coming term. On the other hand, there are multiple uncertainties, and population growth has slowed markedly.