Macro Note 20 June 2019 - Landsbankinn
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Macro Note 20 June 2019
Macro note
In real terms, the economy grew by 1.7% YOY in Q1. Domestic demand decreased by 2.8%, GDP growth and contribution of underlying components
exports increased by 2.6% and imports decreased by 8.1%. The contribution of net foreign trade
Source: Statistics Iceland
to GDP growth was positive by 4.4%.
15%
Private consumption increased by 2.8% YOY in Q1. This is the smallest YOY increase since
Q3 2014.
10%
Business sector investment decreased by 33.6% YOY in Q1. This decrease is mainly due to
the sale of four airplanes by WOW air to Air Canada in January which enters national accounts as 5%
disinvestment. Business sector investment excluding ships, aircrafts and heavy industry
0%
decreased by 5.4% YOY. This is the 5th consecutive quarter that business sector investment (ex.
ships, aircrafts, heavy industry) decreases YOY. -5%
We expect the economy to contract by 0.5% in real terms in 2019, but that this contraction will
-10%
be short-lived and that the economy will grow again in 2020. 2011 2012 2013 2014 2015 2016 2017 2018 2019Q1
Private consumption Public consumption Capital formation Exports Imports GDP
Private consumption increased by 2.8% YOY in Q1. Business sector investment excl. ships, aircrafts and Most GDP forecasts assume a small contraction in 2019, but the downturn will be of short duration, and the economy will
This is the smallest increase YOY since Q3 2014. heavy industry decreased by 5.4% YOY in Q1 grow again in 2020.
Source: Statistics Iceland Source: Statistics Iceland Source: Statistics Iceland, CBI, IMF, Landsbankinn, Íslandsbanki, Arion Bank
12% 40% 4%
3%
10%
30%
2%
8%
YOY volume change
YOY volume change
20% 1%
6%
0%
4% 10%
-1%
2%
0% -2%
0%
-3%
-10%
-2% 2019 2020 2021
-4% -20% Landsbankinn (2019-05) CBI (2019-05) Stat. Iceland (2019-02)
Arion Bank (2019-04) Íslandsbanki (2019-06) IMF (2019-04)
20 June 2019 - Landsbankinn Economic Research
2Macro note
The current account surplus was ISK 35.1bn (1.2% of GDP) in Q1 2019 compared to an ISK The current account surplus was ISK 35.1bn (1.2% of GDP) in Q1 compared to an ISK 6.7bn (0.2% of GDP) surplus in
6.7bn (0.2% of GDP) surplus in Q1 2018. The increase was mainly due to exports of old fishing Q1 2018.
Source: CBI
vessels and airplanes (WOW air sold 4 jets to Air Canada in January). The surplus excluding
ships and airplanes was ISK 12.5bn (0.4% of GDP). 140
120
WOW air ceased operations at the end of Q1 so the bankruptcy did not impact Q1 numbers. 100
80
No catch quota was issued for capelin this season and the outlook for next year is rather 60
bleak, as stock recruitment has been poor. 40
20
We expect the current account surplus to be ISK 34.5bn (1.2% of GDP) in 2019, compared 0
with a surplus of ISK 81.5bn (2.9% of GDP) in 2018. The contraction is mainly due to the -20
bankruptcy of WOW air and capelin catch failure. -40
-60
The net external position was positive by ISK 598bn (20% of GDP) at the end of Q1, an -80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
increase of ISK 270bn (9.2% of GDP) QOQ. The increase is mainly do to a rise in prices of
2016 2017 2018 2019
foreign securities and a deprecation of the króna.
Goods account balance Service account balance Primary income Secondary income Current account
The net external position was positive by ISK 276 bn (9.9% of GDP) at year-end 2018 Exports of airplanes and ships amounted to ISK Capelin exports where ISK 17.8bn last year. No catch
22.6bn in Q1. quota was issued for this season.
Source: CBI, Statistics Iceland Source: Statistics Iceland Spurce: Statistics Iceland
40
25
1.000 50% 35
20 30
0 0%
25
15
-1.000 -50% 20
ISK bn
10 15
-2.000 -100%
10
5
-3.000 -150% 5
0 0
-4.000 -200% 2010 2012 2014 2016 2018
2005 2007 2009 2011 2013 2015 2017 2019
Airplanes Ships
net IIP Percentage af GDP (right axis)
20 June 2019 - Landsbankinn Economic Research
3Macro note
Inflation was 3.6% in May, up from 3.3% in April. We expect the CPI to increase by 0.4% MOM Inflation expectations appear to have peaked in Q4 2018, falling steadily since.
in June, bringing the headline number to 3.4%. The MOM increase is mainly due to seasonal Source: Statistics Iceland, Landsbankinn Economic Research forecast
changes in international airfares. 5%
Inflation expectations appear to have peaked in Q4 2018, falling steadily since. The break-even
inflation rate is currently at 3% after going as high as 4.5% in October 2018. 4%
The Monetary Policy Committee (MPC) lowered policy rates by 0.5 percentage points at its
3%
meeting in May. All five committee members voted in favour of this change. We expect the MPC
to lower policy rates a further 0,25 percentage points next week.
2%
1%
0%
2017 2018 2019
Break even inflation rate Market agents (after 12M) Businesses (after 12M)
Inflation was 3.6% in May. Headline inflation and CPI exluding housing are The main components in inflation. 80% of subcomponents in the CPI have increased the
converging. last 12 months.
Spurce: Statistics Iceland Spurce: Statistics Iceland Spurce: Statistics Iceland
5%
5% 5 100%
4%
3% 4
4% 3 80%
2%
2
1%
1 60%
3% 0%
0
-1% -1 40%
2% -2% -2
-3% -3 20%
1% -4% -4
2017 2018 2019 2017 2018 2019 0%
Consumer Price Index CPI excluding Housing Imported goods Petrol 2013 2014 2015 2016 2017 2018 2019
0% Housing Domestic goods
2013 2014 2015 2016 2017 2018 2019 Services Other components Increased Unchanged Decreased
20 June 2019 - Landsbankinn Economic Research
4The contents and form of this document were produced by employees of Landsbankinn Economic Research (hagfraedideild@landsbankinn.is) and are based on information available to the public when the analysis was compiled. Assessment of this information reflects the views of Economic Research’s employees on the analysis date, which may change without notice. Neither Landsbankinn hf. nor its personnel can be held responsible for transactions based on the information and opinions expressed here as the content is not provided as personal advice on individual transactions. Attention should be drawn to the fact that Landsbankinn hf. may, at any time, have direct or indirect interests at stake either on its own behalf or through its subsidiaries or customers, for instance as an investor, creditor or service provider. Nonetheless, all analyses are prepared independently by Landsbankinn Economic Research and in accordance with the Bank’s rules on separation of activities accessible on the Landsbankinn website.
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