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Growth is projected to slow towards more sustainable rates. Consumption growth will ease as employment and wages decelerate. Exports of goods and services, especially tourism, will weaken after a strong 2018, while imports will decline following slowing internal demand. The residential housing boom will ease and the growth of private investment will weaken. The unemployment rate remains low, at around 3%.
Inflation is creeping up, mainly due to a weaker exchange rate and higher import prices. The central bank raised the policy interest rate and is projected to increase it further to anchor rising inflation expectations. Fiscal policy is projected to be broadly neutral. However, a tighter stance via current expenditure containment would be appropriate as price pressures persist and public debt is declining only slightly. The planned tax relief for low-income earners will strengthen work incentives and make the economy even more egalitarian.
Source: OECD Economic Outlook 104 database.
Economic Survey of Iceland (survey page)