Iceland

Iceland Economic Forecast

Iceland Economic Outlook

Annual economic growth likely slowed in the second quarter. Domestically, price pressures remained nearly four times above the Central Bank’s target despite easing from Q1. Moreover, the Central Bank hiked rates aggressively in May in a bid to tame inflation, boding ill for credit and investment. As a result, purchasing power will have remained under pressure in Q2. That said, the unemployment rate fell in the quarter, which likely cushioned private consumption somewhat. On the external front, merchandise imports declined at the steepest annual pace since Q4 2020 in Q2, while goods exports fell at the quickest year-on-year rate in three years. Furthermore, total hotel stays rose 15% year on year in Q2, the slowest expansion in over two years. These developments hint at a weak external sector performance in Q2.

Iceland Inflation

In July, inflation dropped to a 14-month low of 7.6% from June’s 8.9% on softer price increases for housing and utilities, as well as transport. In the remainder of H2, inflation should ease further from current levels, thanks to tighter monetary policy and softer activity. Still, it will remain markedly above the Central Bank’s 2.5% target and be the highest in the region on average in 2023.

This chart displays Economic Growth (GDP, annual variation in %) for Iceland from 2013 to 2022.

Iceland Economic Data

2018 2019 2020 2021 2022
Population (million) 0.3 0.4 0.4 0.4 0.4
GDP (USD bn) 26.3 24.7 21.6 25.6 28.1
GDP per capita (USD) 75,524 69,127 59,267 69,371 74,609
GDP (EUR bn) 22.3 22.0 18.9 21.6 26.7
GDP per capita (EUR) 64,066 61,757 51,915 58,667 70,945
GDP (ISK bn) 2,844 3,026 2,920 3,250 3,797
Economic Growth (Nominal GDP, ann. var. %) 7.6 6.4 -3.5 11.3 16.8
Economic Growth (GDP, ann. var. %) 4.9 1.9 -7.2 4.5 7.2
Private Consumption (ann. var. %) 4.8 1.7 -3.4 7.1 8.5
Government Consumption (ann. var. %) 4.7 3.9 5.2 2.3 2.2
Fixed Investment (ann. var. %) 2.3 -4.1 -7.4 10.8 7.6
Exports (G&S, ann. var. %) 0.4 -5.3 -31.0 14.6 22.3
Imports (G&S, ann. var. %) -0.9 -9.1 -20.6 19.9 19.9
Unemployment (% of active population, aop) 3.1 3.9 6.4 6.0 3.8
Fiscal Balance (% of GDP) 1.0 -1.6 -8.9 -8.5 -4.1
Public Debt (% of GDP) 63.2 66.6 77.8 75.6 68.7
Inflation (CPI, ann. var. %, aop) 2.7 3.0 2.8 4.4 8.3
Key Interest Rate (% eop) 4.50 3.00 0.75 2.00 6.00
Exchange Rate (ISK per USD, eop) 116 121 127 130 143
Exchange Rate (ISK per USD, aop) 108 123 135 127 135
Exchange Rate (ISK per EUR, eop) 133 136 156 148 152
Exchange Rate (ISK per EUR, aop) 128 137 155 150 142
Current Account Balance (EUR bn) 0.9 1.4 0.2 -0.6 -0.5
Current Account Balance (% of GDP) 4.3 6.5 0.9 -3.0 -2.0
Merchandise Trade Balance (EUR bn) -1.8 -1.2 -0.9 -1.4 -2.1
Foreign Direct Investment (EUR bn) -0.3 -0.2 -0.8 0.1 0.6

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