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Iceland Country Risk Report 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 25 pages

Core Views Despite the rapid rise in popularity of Iceland’s anti-establishment Pirate Party, we remain sceptical it will win power in the April 2017 general elections. Instead, the Pirates’ popularity will prompt the ruling coalition to pursue a more expansionary fiscal policy in 2016, which will allow it to regain public support. Iceland’s economic rebound will slow modestly in 2016, due to weaker demand from the eurozone and rising uncertainty around the lifting of capital controls this year. The Icelandic krona will come under pressure with the start of capital account liberalisation in the next few months. Krona depreciation will add to rising wage-pull inflationary pressures in H116, warranting monetary tightening, which will stabilise the currency in H216.

Table Of Contents

Iceland Country Risk Report 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Rebound To Remain In Place, But To Slow Down8
Iceland's economic rebound will slow modestly in 2016, due to stagnant external demand and rising uncertainty around the lifting of
capital controls this year
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
Monetary Policy 11
Gradual Lifting Of Capital Controls To Ensure Inflation And FX Stability11
The Icelandic krona will come under pressure with the start of capital account liberalisation in the coming months Krona depreciation
will add to rising wage-pull inflationary pressures in H116, warranting monetary tightening, which will stabilise the currency in H216
TABLE: NET EXPORTS FORECASTS11
Monetary Policy Framework 12
Chapter 2: 10-Year Forecast 15
The Icelandic Economy To 2025 15
Settling Into More Moderate Long-Term Growth Trend15
Real GDP growth over our 10 year forecast period is forecast to average 22 This is lower than the 47% in the decade to 2007, but
higher than our 2015-2025 eurozone average forecast of 14% However, population growth rather than productivity gains will be a
major driver of economic expansion
TABLE: LONG-TERM MACROECONOMIC FORECASTS15
Chapter 3: Political Outlook 17
SWOT Analysis 17
BMI Political Risk Index 17
Domestic Politics 18
Pirate Party Popularity To Prompt Fiscal Expansion18
Despite the rapid rise in popularity of Iceland's anti-establishment Pirate Party, we remain sceptical that it will win power in the April
2017 general elections Instead, the Pirates' popularity will prompt the ruling coalition to pursue a more expansionary fiscal policy in
2016, which will allow it to regain public support
TABLE: POLITICAL OVERVIEW18
Long-Term Political Outlook 19
Few Major Threats On the Horizon19
Over our 10-year forecast period we see Iceland enjoying a high degree of political stability, given a solid security environment, few
societal dividing lines and a high standard of living Uncertainty over how and when the government will normalise the country's
economic situation weighs on political continuity, but Iceland will likely remain in the top 20 politically stable countries globally
Chapter 4:BMI Global Macro Outlook 21
Global Macro Outlook 21
Tail Risks Mounting Amid Sub-Par Growth21
TABLE: GLOBAL ASSUMPTIONS21
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %22
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 22
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %23
TABLE: MACROECONOMIC DATA and FORECASTS25

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