The year now coming to a close has certainly developed differently than most observers expected in January. Presumably, most were hoping – as we were – that the final chapter of the pandemic would yield to a period of greater equilibrium and less in the way of big news on the global front. Russia’s invasion of Ukraine put paid to those hopes, of course, and the year has been characterised by significant volatility in the global economy and financial markets.
Supply chain bottlenecks, an energy crisis, a commodity shortage, spiking inflation, and rising interest rates worldwide have been the order of the day in 2022, and now, at the year-end, households and businesses in most, if not all, of Iceland’s neighbouring countries are facing the highest inflation they have seen in decades and the highest interest rates in quite some time. Fortunately, the Icelandic economy has by and large weathered the storm, as it is in many ways more heterogeneous than before and is simultaneously more resilient against external and internal shocks.
After this highly eventful year, we thought it appropriate to take a backward glance and provide a quick review of our forecasting record for the year.
2022: the year of great gusto in private consumption
Let us begin by looking at the GDP growth projections we published in our macroeconomic forecast in late January, when we forecast GDP growth for the year at 4.7%. We expected this growth to stem mostly from robust growth in exports, mainly tourism and fishing. We also expected private consumption growth to fuel GDP growth in 2022, while the share of investment would ease markedly relative to 2021.