Economic growth will slow to 2.5% in 2023 and 2.3% in 2024. Private consumption will weaken as wage growth moderates and dissaving comes to an end. Business and housing investment are likely to decrease as financial conditions continue to tighten, and public investment will also decline in 2023-24. Export growth will remain strong thanks to robust growth of foreign tourism.
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The pandemic-related collapse of foreign tourism and international travel, which account for almost a fifth of GDP, highlighted the need to diversify the economy. Iceland needs to improve resilience and find new drivers of productivity and employment growth, in particular given the objective of emission reductions. Boosting skills across the population is hence the top priority, along with reforms to strengthen competitive forces.
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