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Mac­roe­co­nomic fore­cast 2022-2024

Íslandsbanki Research issues a macroeconomic forecast for 2022-2024

After contracting sharply the Icelandic economy has recovered nicely and is showing signs of tension. We predict a roughly 7% GDP growth for the current year, as exports steadily take over from domestic demand as the main driver. The growth will be considerably slower in the latter two years of the forecast period as exports continue to weigh heavily. The increase in number of tourists will play a key role, along with the export of intellectual property, fish farming and export of pelagic fish.

We believe inflation has peaked and will subside over the forecast period as housing prices rise at a slower rate and import prices stabilize. The labour market remains a cause of uncertainty and we predict an increase in the purchasing power of wages as soon as next year. Persistent inflation calls for monetary restraint by the Central bank, but it looks like the policy rate will peak at 6% this year and begin to subside again next year.

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Main find­ings

  • GDP: 7.3% GDP growth in 2022, 2,2% in 2023 and 2.4% in 2024

  • External trade: Current account deficit estimated at 1.5% of GDP in 2022 but a surplus of of 1% in 2023 and 2.4% in 2024.

  • Inflation: Inflation peaked in July and will abade over the coming months. To average 6.3% in 2023 and 3.9% in 2024.

  • Labour market: Unemployment to average 3.8% in 2022, 3.2% in 2023 and 3.6% in 2024.

  • Interest rates: Policy rate projected at 6% by end-2022. Close to 4.5% at the end of the 2024.

  • The ISK: ISK estimated to appreciate by 6% from the end of August 2022 until year-end 2024.

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Jón Bjarki Bentsson

Chief economist


Bergþóra Baldursdóttir