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Country Economic Forecasts > Iceland

  • August 2016
  • -
  • Oxford Economics
  • -
  • 5 pages

Having stayed above 4% in Q1, GDP growth is forecast to slow to 2.7% this year and stay around 2.5% in 2017-19 as the end of capital controls begins a phase of higher capital outflow. Financing this while stabilising the ISK to keep inflation low requires the government to maintain primary fiscal surpluses (now enshrined in the 'organic budget law') and the central bank to keep interest rates above EU levels (although there was a 50bp cut to 5.25% this week to try to stop short-term inflows pushing the ISK even higher).

Downside risks to growth are compounded by political uncertainty, with the ruling coalition forced into early elections this year after a backlash that sidelined established parties from June's presidential race. While the current coalition may hang on, it faces a strong challenge from the Pirate Party, which inclines towards retaining some of the present financial regulations and controls, and could win the poll or hold the balance of power.

Medium-term growth is also constrained by the limited range of industries that can be expanded to offset the sharp shrinkage of financial services since 2008, the difficulty of reversing net capital outflows despite restored investment-grade credit ratings, the small domestic market, and possible limits on access to currently slow-growing EU markets after the abandonment of accession talks.

Table Of Contents

Country Economic Forecasts > Iceland

The following represents a general Table of Contents outline for the Country Economic
Forecast. The actual report may cover any or all of the topics listed below.

  1. Highlights and Key Issues - four/five paragraphs of analysis covering the
    main economic and political issues contained in the subsequent Economic Overview
  2. Forecast Table showing % changes for the country - with 2 years of historical
    data and 4 years of forecast data for the followingand#58;
    • Domestic demand
    • Private consumption
    • Fixed investment
    • Stockbuilding (% of GDP)
    • Government consumption
    • Exports of goods and services
    • Imports of goods and services
    • Unemployment
    • Consumer prices
    • Current account balance (US$ and % of GDP)
    • Government budget (% of GDP)
    • Short-term interest rates (%)
    • Long-term interest rates (%)
    • Exchange rate (vs. US dollar)
    • Exchange rate (vs. euro)
  3. Economic Overview - two pages of events-driven analysis highlighting the
    most recent economic activity and, where relevant, political developments of the
    country, detailing significant changes to Oxford Economics' forecasts
  4. Charts and Tables - covering a full range of economic developments relevant
    to the time period covered. These could include such topics asand#58;
    • Contributions to GDP growth
    • Monthly industrial output
    • Business and consumer confidence
    • Unemployment rate
    • Retail sales
    • Prices and earnings
    • Consumption and investment
    • Government balance and debt
    • GDP and industrial production
    • Monetary policy and bond yields
  5. Background Information on the country
    • One or two pages of text covering the main historical political and economic factors
      that determine the country's current position
  6. Key Facts on the country
    • Map of the country
    • Key political facts
    • Long-term economic and social development - changes since 1980
    • Structure of GDP by output - latest year
    • Long-term sovereign credit ratings and outlook
    • Corruption perceptions index- latest year
    • Structural economic indicators - changes since 1990
    • Destination of goods' exports -prior years - latest year
    • Composition of goods andamp; services exports - latest year

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