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Macroeconomic forecast 2021-2023: Post-pandemic take-off

Corona Crisis takes its leave, strong GDP growth takes the stage

The COVID-19 pandemic has made its mark on 2021 worldwide, and in greater measure than previously hoped. Nevertheless, the Icelandic economy has turned the page and begun a new growth phase, after contracting 6.5% in 2020.

We forecast GDP growth at 4.2% in 2021, driven mainly by robust growth in domestic demand. Export growth has suffered a temporary setback, but most indicators imply that it will rebound sooner rather than later.

For 2022, we forecast 3.6% growth, with exports growing rapidly and domestic demand continuing to grow apace. In the final year of the forecast horizon, 2023, we forecast 3.0% growth, as the impact of COVID-19 will be behind us and the economy will have begun to rebalance.

Macroeconomic forecast 2021 - 2023

Main findings

  • GDP: 4.2% GDP growth in 2021, 3.6% in 2022 and 3.0% in 2023

  • External trade: Current account deficit estimated at 1.4% of GDP in 2021 but a surplus of 2% in 2022 and over 3% in 2023

  • Inflation: Inflation to average 4.4% in 2021, 3.0% in 2022 and 2.5% in 2023

  • Labour market: Unemployment to average 7.6% in 2021, 4.3% in 2022 and 3.7% in 2023

  • Interest rates: Policy rate projected at 1.5% by end-2021, 2.5% by mid-2022, and 3.5% by Q3/2023

  • The ISK: ISK appreciation estimated at 3.6% in 2021, 5.1% in 2022, and 0.9% in 2023


Jón Bjarki Bentsson

Chief economist


Bergþóra Baldursdóttir