Iceland - Economic forecast summary (June 2015)


The economy has entered its seventh year of economic growth, with a pick-up in private consumption and fixed investment and a boom in tourism. Large investments in energy-intensive projects and fiscal support for households will sustain growth in 2015 and 2016. Inflationary pressures will mount as the labour market tightens.Fiscal policy has made significant progress in reducing government debt. The pace of fiscal consolidation will slow in 2015, but debt will still fall further under current plans. Containing public spending pressures will be important in maintaining an appropriate budgetary stance. With spare capacity disappearing, interest rates will need to rise as sizeable wage settlements unleash inflationary pressures. Structural reforms are needed to enhance the investment environment.

Investment slumped after the crisis and is now beginning to recover, but insufficiently to prevent the capital stock from eroding. Public investment was boosted in the 2015 budget, mainly in transportation projects. Making gradual progress in lifting of capital controls would send a positive signal to investors.


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