The economy is projected to grow by 5.2% in 2022 and 4% in 2023, driven by rebounding foreign tourism and robust goods exports. Business investment will slow as financial conditions are tightening and pent-up projects are being terminated. Household consumption will remain solid on the back of rising wages and employment, despite reduced policy support. Risks surrounding foreign tourism and shipping costs could weigh on the projections.
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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2021 Structural Reform Priorities