Iceland Economic Outlook

December 20, 2019

The economy contracted slightly in the third quarter after briefly recovering in the second quarter. Exports of goods and services plunged in Q3 on falling tourist arrivals, as the collapse of WOW air earlier this year continued to depress the tourism sector. On a more positive note, consumer spending picked up in Q3, while fixed investment recovered, buttressed by robust residential investment and despite declining business investment. Turning to the fourth quarter, the economy likely remained on a feeble footing. While fiscal stimulus and more accommodative monetary conditions should have fed through to domestic demand, ongoing uncertainty in the tourism sector likely continued to stall investment plans and drag on services exports. Moreover, the total fish catch, a key export earner, shrank sharply in annual terms in November.

Iceland Economic Growth

The economy should recover in 2020 as a recovery in fixed investment and lower interest rates support domestic demand. Moreover, tourism should rebound modestly, barring further complications from the WOW air insolvency. Risks remain slanted to the downside due to Iceland’s vulnerability to external shocks. FocusEconomics panelists see GDP growth at 1.7% in 2020, which is down 0.1 percentage points from last month’s forecast, and 2.6% in 2021.

Iceland Economy Data

	2014	2015	2016	2017	2018
Population (million)	0.3	0.3	0.3	0.3	0.3
GDP per capita (USD)	49,084	56,494	52,754	60,759	75,699
GDP (USD bn)	15.8	18.4	17.4	20.2	25.6
Economic Growth (GDP, annual variation in %)	4.1	2.1	4.7	6.6	4.6
Consumption (annual variation in %)	0.9	3.2	4.5	7.2	8.1
Investment (annual variation in %)	2.2	15.9	21.3	17.8	11.6
Exports (G&S, annual variation in %)	6.7	3.2	9.1	10.9	5.4
Imports (G&S, annual variation in %)	0.1	9.8	13.8	14.5	12.5
Retail Sales (annual variation in %)	2.0	6.6	11.0	12.3	9.1
Unemployment Rate	5.4	4.9	4.0	3.0	2.8
Fiscal Balance (% of GDP)	-1.8	-0.1	-0.8	12.4	0.5
Public Debt (% of GDP)	81.8	78.8	65.0	51.2	43.1
Inflation Rate (CPI, annual variation in %)	3.9	2.1	1.6	1.7	1.8
Inflation (PPI, annual variation in %)	-4.4	-0.7	5.1	-8.0	-4.7
Policy Interest Rate (%)	5.38	4.50	5.75	5.00	4.25
Stock Market (annual variation in %)	27.5	10.6	38.0	-6.7	4.7
Exchange Rate (vs EUR)	158.5	154.3	141.3	119.1	124.3
Exchange Rate (vs EUR, aop)	162.2	154.9	146.3	133.7	120.5
Current Account (% of GDP)	5.9	3.8	5.2	7.7	3.5
Current Account Balance (USD bn)	0.9	0.7	0.9	1.6	0.9
Trade Balance (USD billion)	0.0	-0.3	-0.6	-1.2	-2.2

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Iceland Facts

	Value	Change	Date
Bond Yield	3.45	-0.99 %	Dec 31
Exchange Rate	121.1	-0.52 %	Jan 01

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