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After expanding strongly in recent years, the economy is projected to gradually approach its potential growth rate. Household consumption will remain robust on the back of strong wages and continuing immigration. Business investment is set to start rising after its recent slump, while residential investment will decelerate. The growth of manufacturing exports will slow as competitiveness declines, while tourism demand will remain strong.
Inflation is picking up. The central bank is projected to raise interest rates to contain price increases. Although a budget surplus is planned for 2018, fiscal policy should be more prudent than projected since the economy still runs way above its potential. Public spending in particular should grow less. A more vigorous competition policy would improve the business climate and spur productivity.
Economic Survey of Iceland (survey page)