Iceland Current Account Balance (% of GDP)

The economy likely delivered another solid performance at the close of 2022. The unemployment rate was stable at Q3’s level—the lowest since Q4 2018—in Q4, and price pressures moderated following their peak in Q3, boding well for spending. Turning to the external sector, hotel stays growth slowed only marginally in October–December from the prior three months, despite a tougher base of comparison. Meanwhile, merchandise export growth was strong in Q4, although it more than halved from Q3. Dynamics at the outset of 2023 will have been challenging; inflation intensified to a six-month high in January, and in response, the Central Bank accelerated its policy tightening in February. Additionally, annual wage growth slowed in January, likely pressuring spending in Q1. On the flip side, the number of employed people rose to the highest level in at least two decades in January, providing some support.