Economic sentiment indicator
08. Feb 2024
Industry less optimistic

The Economic Sentiment Indicator (ESI), which measures the consumers’ and businesses’ expectations of the economic situation, is falling. Optimism is particularly low in the retail and service industries, while the construction industry remains confident. The consumer outlook holds steady.

The ESI sits at -1, 18 points below the long-term average of 17. Retail trade and services saw the sharpest dip in confidence since the last survey, while the industrial sector (predominantly fishing and aquaculture) also saw a drop. Construction remains optimistic, and consumer confidence is stable. Households expect a slight improvement in their own financial situation but anticipate delaying major purchases in the coming year.

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The Economic Sentiment Indicator (ESI) is made up of five biannual surveys gathering the views of consumers (households) and the four industrial sectors (industry, construction, retail and services) on the current and expected economic situation. The ESI thus offers an indication of the state of the economy. The table below shows the indicators for each survey.

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Consumers expect slightly better personal finances in one year

The consumer confidence indicator was 1 in the January 2024 survey, the same as in the previous survey from June 2023. Consumers have a slightly more optimistic outlook on their own finances 12 months from now compared to today. As in the previous survey, 25% say they are just managing to make ends meet, while about 60% say they are setting some money aside. Consumers are, however, slightly less optimistic about the general economic situation in the Faroes over the next 12 months compared to today.

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Major purchases still on hold

Consumers still think that now is not the right time for large purchases such as furniture and electronics. The net confidence indicator remains well below the long-term average. Consumers rarely believe there is an ideal time to buy a house or a car. They do, however, expect slower price growth one year from now compared to the previous year.

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Survey questions and graphs are available on the consumer page.

Retail confidence is waning

Consumer prices continue to grow but at a slower pace, and that is reflected in retail sales. The retail trade index for Q3 2023 reveals a 9% year-on-year drop in sales volume in the ‘clothing and footwear’ commodity group. Sales of cosmetics and toilet articles and electrical household appliances have also declined. The confidence indicator for the retail sector is -27, compared to -12 in June 2023. As a major supplier of goods for the domestic market and household consumption, this sector is negatively affected by the growing cautiousness of consumers and their hesitancy to buy.

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The retail trade sector has a less optimistic outlook on the year ahead than in the previous survey.

Survey questions and graphs are available on the retail trade page.

Construction confidence is high

The confidence indicator for the construction sector increased from 46 in June 2023 to 51 in January 2024 and remains well above the long-term average of 23. A large portion of the construction sector reports staff shortage as the main production obstacle. The staff shortage in the past year is expected to increase slightly in the coming year. Construction companies anticipate a slightly higher demand for staff over the next year. They also report an increase in orders, but secured employment in number of months is somewhat lower.

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Survey questions and graphs are available on the construction page.

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Apprehension in the primary sector and industry

The industrial confidence indicator went down from -15 in June 2023 to -19 in January 2024. This is mainly due to fewer orders. However, surveyed companies report that their international market share and prices have increased.

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No improvement in the service sector

The service sector is also more pessimistic now than in the previous three surveys. The surveyed companies are not satisfied with their turnover in the past year. For instance, overnight hotel stays dropped 4% from 2022 to 2023, but the number of airline passengers reached an all-time high in 2023. Just over half of Faroese hotel rooms were occupied in 2023. The service sector is, however, more optimistic about the future, with many companies expecting higher demand in the coming year.

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Survey questions and graphs are available on the services page.

About the tendency survey and the ESI

The tendency survey consists of indices that show the general economic sentiment and confidence levels among businesses and consumers across key sectors.

The major element of this survey is economic sentiment indicator (ESI), a composite indicator compiled twice annually (January and June) that calculates the confidence that consumers and four industrial sectors have in the economy.

Rather than reflecting a real economic figure, the ESI represents the difference between the percentages of respondents giving positive and negative replies about their current and projected economic outlook.

The ESI is a weighted average of the balances of replies to selected questions addressed to consumers and companies in four industrial sectors.