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Macroeconomic forecast update: 2018-2020

The outlook is for slow GDP growth in 2019, followed by a rebound to a handsome growth rate in 2020.

Islandsbanki Research has published a macroeconomic forecast update for 2018-2020.

Main findings:

The current business cycle has proven more resilient than many expected. GDP growth averaged 4.4% per year in 2013-2017. The surge in tourism has played a major role in this, as have a number of other factors that have supported private consumption growth and investment.

Figures for the first nine months of 2018 show a continuation of this trend. Output growth measured 5.0% over the period, owing in particular to swift private consumption growth and a favourable contribution from net trade. Yet there are a number of signs of a marked slowdown in Q4, and we therefore project output growth for 2018 as a whole at 3.7%.

The outlook is for much weaker growth in 2019. The drivers of the recent growth spurt will all be on sabbatical this year. Private consumption growth will be slow and services export growth muted, and business investment will contract year-on-year, according to our forecast, which provides for GDP growth of 1.1% in 2019.

The outlook is for growth to pick up again in 2020, soaring to 3.1%, buoyed up by livelier private consumption growth, a resumption of growth in business investment, and continued growth in other investment and in goods and services exports.

Updated macroeconomic forecast 2018-2020