13 May 2024
The week ahead
- On Tuesday, Amaroq publishes results.
- Reitir publishes its results on Wednesday.
- On Thursday, the Central Bank of Iceland (CBI) releases figures on payment card turnover in April and Iceland Seafood publishes results.
- Price measurements for the May Consumer Price Index will be carried out this week.
Image of the week
Higher interest rates have encouraged people to invest in savings and this is reflected in growing household deposits, leading to increased interest income. Without higher interest rates, these funds might have been expected to go towards consumption, putting pressure on the economy. This effect is part of the function of the monetary policy, i.e. higher interest rates detract from consumption and encourage savings. The result has been a great increase in household interest income, which is currently higher than interest expenses. As the fixed interest term on a large part of mortgages expires in the near future, it is not unlikely that household interest expenses will increase again in excess of interest income.
Highlights of the previous week
- The Monetary Policy Committee of the CBI decided to maintain an unchanged polity rate. The CBI’s key interest rate, interest on 7-day term deposits, will remain 9.25%. The decision was in line with expectations - we had forecast unchanged rates. In the MPC’s statement, the Committee explains that it considers there to be increased likelihood that the current level of restrain is adequate to push inflation down to target within an acceptable time frame. This indicates that the conditions exist to lower interest rates when inflation and inflation expectations recede. This wording was not included in the MPC’s previous statement and we consider suggestive of a milder tone. We expect inflation to remain more or less unchanged over the summer months and do not anticipate the first interest rate cut until October.
- Alongside the rate decision, the CBI published its Monetary Bulletin, containing a new macroeconomic forecast. The CBI’s inflation forecast for this year is very similar to ours. We forecast 6.0% inflation in the second quarter and 5.8% in the third quarter. Our forecasts differ slightly when it comes to the fourth quarter of this year, with the CBI forecasting 5.3% inflation compared with our 5.5% forecast. The CBI’s forecast for GDP growth is also similar to ours despite a difference in growth components. The CBI forecasts 1.1% growth this year and 2.3% in 2025 while we forecast 0.9% growth this year and 2.2% in 2025.
- In April, tourist departures via Keflavík International Airport numbered 137,000, which is around 5,000 fewer than in April 2023. Despite fewer departures in April compared with the previous year, total departures in the first four months of the year are just under 6% higher than last year.
- Registered unemployment was 3.6% in April, 0.3 percentage points higher than the same month last year. Unemployment is slightly down between months, from 3.8%. The month-over-month decrease is the effect of seasonal fluctuations, with unemployment generally falling in the summer months.
- The Bank of England kept the policy rate unchanged at 5.25%. Two out of nine members of the Monetary Policy Committee voted against unchanged rates and for initiating a rate-cutting cycle.
- Eimskip, Marel (investors' presentation), Nova, Sýn and Reginn published results. Arion Bank determined to extend its repurchase programme, Icelandair and Play released load figures..
- Reitir auctioned bonds.
Statistics and market data
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24 June 2024
The housing price index was up by 1.4% in May and the rental price index by 3.2%, according to figures published last week. While the Bank of England maintained an unchanged policy rate, the Swiss National Bank lowered its rate by 0.25 percentage points. Of most interest domestically this week is without doubt the CPI, to be published by Statistics Iceland on Thursday.
18 June 2024
Last week, we saw the publication of unemployment figures, tourist numbers and domestic payment card turnover in May. The US Federal Reserve kept its policy rate unchanged. Later today, the Housing and Construction Authority (HMS) releases the housing price index.
10 June 2024
The European Central Bank (ECB) lowered its policy rate last week. Stronger labour market figures from the US than generally expected increase the likelihood that the Federal Reserve will postpone initiation of rate cuts.
3 June 2024
Domestic product contracted by 4% in the first quarter of the year and inflation measured 6.2% in May, slightly higher than predicted.
6 May 2024
A majority of the market now consider the monetary policy stance too tight. This opinion has become much more pervasive than in April, in response to steadily growing restraint alongside receding inflation and unchanged interest rates.
29 April 2024
Economic growth will be limited in coming years according to our newly published macroeconomic forecast up to and including 2026. We forecast 0.9% growth this year, 2.2% next year and 2.6% in 2026. We expect inflation to recede down to 5.5% by the fourth quarter of this year. A rate-cutting cycle will begin in October, so our forecast, and we expect the economy to pick up speed alongside falling interest rates.
29 April 2024
Landsbankinn Economic Research forecasts limited economic growth this year. Inflation remains persistent and rate cuts aren’t expected until this fall.
22 April 2024
Nominal housing prices have risen by 5.2% in the past 12 months, according to a new housing price index, and the real price of residential housing is slightly higher than the same time last year.
15 April 2024
Inflation will recede somewhat in April, from 6.8% to 6.1%, only to remain fairly stable in the coming months and stand at 5.9% in July, according to our newest inflation forecast. Despite the dent interest rate increases have made in demand, the economy is still going fairly strong and there is tension in the labour market. Inflation expectations remain well above target.
8 April 2024
Around 14% more tourists travelled through Keflavík International Airport in February of this year than the same month of 2023. The duration of stays is shorter than before, with registered overnight stays declining by 2.7% between years in February.