Iceland Economic Outlook

March 3, 2020

The economy recovered in the final quarter of last year on a rebound in the external sector, amid stronger exports of business and intellectual property products services. However, domestic activity was muted, with consumption losing steam and fixed investment contracting. Over 2019 as a whole, growth was the weakest since 2012, with the economy hit by the impact of the WOW Air bankruptcy on the tourism sector and a weak fish catch. Tepid economic momentum last year fed through to the labor market, with the unemployment rate rising markedly. Turning to 2020, early signs are downbeat. In January, passenger arrivals fell year-on-year amid ongoing airline capacity constraints, while the total fish catch also contracted. Moreover, the ongoing coronavirus fallout will likely hamper the tourism sector in the remainder of the first quarter.

Iceland Economic Growth

Growth will likely be moderate this year. While a rebound in fixed investment and accommodative fiscal and monetary policy should support activity, the coronavirus outbreak and low airline seat capacity will constrain the tourism sector. Iceland’s vulnerability to external shocks is a key risk to the outlook. FocusEconomics panelists see GDP growth at 1.5% in 2020, which is down 0.2 percentage points from last month’s forecast, and 2.5% 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)	56,494	52,754	60,759	75,587	76,458
GDP (USD bn)	18.4	17.4	20.2	25.5	26.6
Economic Growth (GDP, annual variation in %)	2.1	4.7	6.6	4.4	4.8
Consumption (annual variation in %)	3.2	4.5	7.2	8.1	4.7
Investment (annual variation in %)	15.9	21.3	17.8	10.2	4.0
Exports (G&S, annual variation in %)	3.2	9.1	10.9	5.4	1.7
Imports (G&S, annual variation in %)	9.8	13.8	14.5	12.3	0.8
Retail Sales (annual variation in %)	6.6	11.0	12.3	9.1	-
Unemployment Rate	4.9	4.0	3.0	2.8	2.7
Fiscal Balance (% of GDP)	-0.1	-0.8	12.4	0.5	0.8
Public Debt (% of GDP)	78.8	65.0	51.2	43.1	37.6
Inflation Rate (CPI, annual variation in %)	2.1	1.6	1.7	1.8	2.7
Inflation (PPI, annual variation in %)	-0.7	5.1	-8.0	-4.7	6.8
Policy Interest Rate (%)	4.50	5.75	5.00	4.25	4.50
Stock Market (annual variation in %)	10.6	38.0	-6.7	4.7	-5.6
Exchange Rate (vs EUR)	154.3	141.3	119.1	124.3	133.3
Exchange Rate (vs EUR, aop)	154.9	146.3	133.7	120.5	127.6
Current Account (% of GDP)	3.8	5.2	7.7	3.6	2.8
Current Account Balance (USD bn)	0.7	0.9	1.6	0.9	0.7
Trade Balance (USD billion)	-0.3	-0.6	-1.2	-2.2	-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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