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Icelanders pessimistic about the economy

The Gallup Consumer Confidence Index (CCI) is at its lowest since 2020. Icelandic households appear highly pessimistic about the economic and labour market situation, according to the index. Consumer expectations can give a reliable indication of where private consumption is headed, and the CCI suggests that consumption will slow markedly in the coming term.

Icelanders are decidedly downbeat about the economic and labour market situation, according to Gallup’s Consumer Confidence Index (CCI) measurement for October. The index measured only 74.2 points this month, a drop of more than 11 points since September. The CCI has been below the 100-point threshold marking parity between optimism and pessimism ever since April 2022, but it has not been this low since the end of 2020, when the pandemic was raging.

All subcomponents of the CCI declined between months, and Icelanders are noticeably gloomy about the economic situation. The subcomponents measuring expectations about the labour market and the economic situation and outlook attracted our particular attention. The economic situation – i.e., the current situation and expectations for the coming six months – now measures 39 points, the lowest level since the end of 2020. This seems to show clearly that Icelanders have begun to feel the effects of high interest rates and inflation and are hardly optimistic about developments in the next several months.

The subcomponent measuring the labour market – i.e., current situation and expectations – measures 109.6 points and is the only one exceeding the 100-point equilibrium value. Icelanders appear to view both current labour market conditions and the outlook for coming months as favourable. Naturally, this accords with the situation on the ground in the labour market, which features strong demand pressures and low unemployment.

The components measuring the current economic and labour market situation and expectations six months ahead have fallen as well. For instance, the assessment of the current position measures 79 points, while six-month expectations measure 71. Both sub-components have fallen significantly since September.

What do these expectations tell us?

Icelanders’ expectations give a fairly reliable indication of households’ position, and there is often a strong correlation between the CCI and developments in private consumption, as can be seen in the chart below. That said, examining recent data shows that after the pandemic, the CCI fell more rapidly from its post-pandemic peak than private consumption did. The two measurements appear a little better synchronised now, however.


The CCI and other economic indicators support our opinion that private consumption will grow far more slowly in the coming term than in the recent past. For example, payment card turnover has contracted strongly in real terms over the past several months. Private consumption growth measured 2.5% in H1/2023 as a whole, and only 0.5% in Q2. In our recent macroeconomic forecast, we projected that it would measure just under 2% for the full year 2023 and then gain pace steadily in 2024 and 2025 as inflation loses steam.


Bergthora Baldursdottir