Main findings in Danske Bank‘s economic forecast for Iceland presented at VÍB open meeting

  • Icelands Economy is recovering after the collapse of the banking system in 2008
  • GDP growth will be around 3-4% in the next 2-3 years
  • The results of the Icesave referendum increases uncertainty but is unlikely to derail the recovery of the Icelandic economy
  • Inflation will continue to decrease and will be below the Central Bank´s target (2,5%) in the next three years.
  • The forecast assumes that the ISK will strengthen by 25% in the next three years.
  • Private consumption will increase by 3% in 2011 but less than that in the following years.
  • The unemployment rate will continue to be around 10% in the coming years.

Lars Christensen, head of Danske Bank Research & Analysis presented the bank's new economic forecast for Iceland at an open meeting hosted by VÍB, Íslandsbanki's Wealth Management, at the Nordica Hilton hotel this morning. This is the first time in four years that Danske Bank publishes a forecast for Iceland. The report projects that Iceland's economy is on the road to recovery with the worst being behind it. A GDP growth of 3%-4% is projected for the next two to three years. Danske Bank assumes the ISK to be undervalued by some 25% and that it will strengthen considerably in the next three years. This, the report states, should facilitate the lifting of capital controls more quickly than currently planned.

The impact of the rejection of Icesave

The results of the referendum on Icesave increases uncertainty and could potentially have negative impact on the country's funding prospects and credit ratings. That said Danske Bank does not expect that the result will slow economic recovery to any great extent.

  • Iceland: Recovery in uncertain times

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