Iceland Economic Outlook

February 26, 2019

The economy likely ended 2018 on a weaker note, after significantly decelerating in Q3 on the back of a sharp contraction in both business and residential investment. Softer tourism growth, following years of surging visitor inflows, should have put a lid on growth in Q4. This is reflected by overnight tourist stays, which rose only modestly in December after a flat November print, thus weighing on hotel occupancy rates. Lastly, although consumer confidence tumbled in November, solid wage growth and a low unemployment rate should have supported private consumption in the quarter.

Iceland Economic Growth

Growth should slow this year as the tourism boom fades, which could impact activity and investment in the construction and housing sectors. In addition, the country is vulnerable to a growth slowdown in Europe, as well as from a shortage of skilled workers owing to the tight labor market. Our panelists expect GDP to rise 2.7% in 2019, which is unchanged from last month’s forecast, and 2.6% in 2020.

Iceland Economy Data

	2013	2014	2015	2016	2017
Population (million)	0.3	0.3	0.3	0.3	0.3
GDP per capita (USD)	46,012	51,672	51,051	59,524	70,588
GDP (USD bn)	15.0	17.0	17.0	20.0	24.0
Economic Growth (GDP, annual variation in %)	4.3	2.2	4.3	7.5	3.6
Consumption (annual variation in %)	0.8	3.2	4.7	7.1	7.8
Investment (annual variation in %)	2.2	16.5	18.7	22.5	9.3
Exports (G&S, annual variation in %)	6.7	3.2	9.2	10.9	4.8
Imports (G&S, annual variation in %)	0.1	9.8	13.8	14.5	11.9
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	12.6	1.5
Public Debt (% of GDP)	84.3	81.8	67.6	52.7	40.9
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	-8.1	-4.6
Policy Interest Rate (%)	6.00	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	4.0	5.3	7.7	3.7
Current Account Balance (USD bn)	0.9	0.7	0.9	1.5	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	4.98	-0.99 %	Mar 11
Exchange Rate	121.3	-0.52 %	Mar 11
Stock Market	1,301	-0.32 %	Mar 11

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