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Macroeconomic forecast 2020-2022

The outlook is for Iceland's GDP not to contract in 2020 despite a setback in the tourism industry. The economy will adjust slowly but less dramatically than previously predicted.

Following a period of substantial growth the Icelandic economy will now adjust to new economic conditions. Fortunately the pillars of the economy are strong and the the standard of living among a vast majority of Icelanders should continue to be among the best worldwide.

The outlook is for Iceland's GDP to have grown by 0.3% in 2019. A sharp decline in industry investment and service exports is offset by increased consumption and considerably less import.

During 2020 we expect quite slow GDP growth, 1.4%, driven by moderate growth of domestic demand. We forecast more growth in 2021 (2.3%) and 2022 (2.4%) as private consumption and exports increase.

Islandsbanki Reseach Macroeconomic forecast 2019-2021 executive summary

Highlights

  • Contraction not in the offing, but adjustment will take time. GDP growth 1.4% in 2020, 2.3% in 2021, and 2.4% in 2022.

  • Exports to regain strength gradually. Export growth 0.4% in 2020 and 2.0% in 2021.

  • Current account to remain in surplus. CA surplus 2.8% of GDP in 2020 and 2.5% of GDP in 2021.

  • Inflation modest in the near term. Inflation 2.2% in 2020 and 2.6% in 2021.

  • Steady growth in purchasing power despite moderate wage hikes. Real wage growth 2.2% in 2020 and 2.1% in 2021.

  • Unemployment relatively high in the near term. Jobless rate 4.4% in 2020 and 3.8% in 2021.

Authors

Jón Bjarki Bentsson

Chief economist

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Bergþóra Baldursdóttir

Economist

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