Iceland Economic Forecast

Iceland Economic Outlook

September 26, 2017

News that the economy entered a technical recession in H1 was taken in stride in early September as fears of a harder landing following outsize growth last year were quelled. In fact, the further cool-off in Q2 came as a surge in imports—underpinned by the significant appreciation of the krona in Q2—outstripped notable improvements in household spending, fixed investment and exports. Furthermore, the modest slowdown appeared to allay concerns that the country’s booming tourism sector and soaring housing prices would overheat the economy. In mid-September, the coalition government collapsed after only one year in office following a clemency scandal that ensnared Prime Minister Bjarni Benediktsson. In the aftermath, snap elections were set for 28 October.

Iceland Economy Data

20122013201420152016
Population (million)0.30.30.30.30.3
GDP per capita (USD)43,47846,01251,67251,05159,524
GDP (USD bn)14.015.017.017.020.0
Economic Growth (GDP, annual variation in %)1.24.41.94.17.2
Consumption (annual variation in %)2.01.02.94.36.9
Investment (annual variation in %)5.32.216.017.822.7
Exports (G&S, annual variation in %)3.66.73.29.211.1
Imports (G&S, annual variation in %)4.60.19.813.514.7
Retail Sales (annual variation in %)4.32.06.611.012.3
Unemployment Rate6.05.45.04.03.0
Fiscal Balance (% of GDP)-3.7-1.8-0.1-0.812.9
Public Debt (% of GDP)92.584.782.468.153.2
Inflation Rate (CPI, annual variation in %)5.23.92.11.61.7
Inflation (PPI, annual variation in %)1.1-4.4-0.75.1-8.1
Policy Interest Rate (%)6.006.004.505.755.00
Stock Market (annual variation in %)16.827.510.638.0-6.7
Exchange Rate (vs EUR)168.9158.5154.3141.3119.1
Exchange Rate (vs EUR, aop)160.9162.2154.9146.3133.7
Current Account (% of GDP)-3.96.24.05.38.1
Current Account Balance (USD bn)-0.50.90.70.91.6
Trade Balance (USD billion)0.30.0-0.3-0.6-1.2

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Iceland Facts

ValueChangeDate
Bond Yield4.970.61 %Oct 16
Exchange Rate105.30.23 %Oct 16
Stock Market1,332-0.52 %Oct 16

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Iceland Economic Growth

September 26, 2017

Although the economy is expected to continue cooling through H2 and into next year, the orderly slowdown in H1 suggests that any deceleration will be forgiving given the tight labor market and buoyant tourism sector. Fluctuations in the exchange rate, however, could threaten the external sector and the recovery in foreign investment. Our panelists expect GDP to expand 5.4% in 2017 and 3.3% in 2018.

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