Iceland Economic Forecast

Iceland Economic Outlook

March 26, 2019

The economy recovered in Q4 2018 following Q3’s sharp deceleration, although growth nevertheless remained weaker than in H1. A rebound in residential investment largely drove the print, the only silver lining in an otherwise gloomy quarter. Private consumption faded noticeably, as did public spending, while business investment sharply contracted for a second consecutive quarter. The external sector also deteriorated, as imports and exports both fell steeply—with service exports plunging due to softer tourism activity. Looking ahead, large scale union strikes have been scheduled in coming weeks after wage negotiations broke down, which could negatively impact growth in the second quarter.

Iceland Economic Growth

Softening private consumption and tourism activity will likely dent economic growth ahead, and could also hit residential investment. 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. Nevertheless, growth should remain solid relative to peers. 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

20132014201520162017
Population (million)0.30.30.30.30.3
GDP per capita (USD)46,01251,67251,05159,52470,588
GDP (USD bn)15.017.017.020.024.0
Economic Growth (GDP, annual variation in %)4.32.24.37.53.6
Consumption (annual variation in %)0.83.24.77.17.8
Investment (annual variation in %)2.216.518.722.59.3
Exports (G&S, annual variation in %)6.73.29.211.94.8
Imports (G&S, annual variation in %)0.19.813.814.511.9
Retail Sales (annual variation in %)2.06.611.012.39.1
Unemployment Rate5.44.94.03.02.8
Fiscal Balance (% of GDP)-1.8-0.1-0.812.61.5
Public Debt (% of GDP)84.381.867.652.711.9
Inflation Rate (CPI, annual variation in %)3.92.11.61.71.8
Inflation (PPI, annual variation in %)-4.4-0.75.1-8.1-4.6
Policy Interest Rate (%)6.004.505.755.004.25
Stock Market (annual variation in %)27.511.638.0-6.74.7
Exchange Rate (vs EUR)158.5154.3141.3119.1124.3
Exchange Rate (vs EUR, aop)162.2154.9146.3133.7120.5
Current Account (% of GDP)5.94.05.37.73.7
Current Account Balance (USD bn)0.90.70.91.50.9
Trade Balance (USD billion)0.0-0.3-0.6-1.2-2.2

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Iceland Facts

ValueChangeDate
Bond Yield4.39-0.99 %Apr 12
Exchange Rate119.7-0.52 %Apr 12
Stock Market1,373-0.32 %Apr 12

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