The economy continues its robust expansion, driven by strong private consumption growth, a terms-of-trade boost and a boom in tourism. Large investments in energy-intensive projects and continued strong wage growth are fuelling domestic demand. The capital controls introduced during the financial crisis will begin to be lifted in 2016.
Inflation has been modest in early 2016 at around 2%, and has been held down by exchange rate appreciation and falling energy prices. However, underlying inflationary pressures are strong and monetary policy should therefore remain tight, which will slow growth in 2017. Fiscal policy is eased in 2016, but still targets a primary surplus, which coupled with windfall receipts arising from the lifting of capital controls will bring down government debt.
Labour productivity growth has been negligible since the crisis. In part this reflects a compositional shift towards low-productivity sectors, such as tourism. Toughening competition policy to stop abuse of dominant positions and tacit collusion, and lowering legal barriers to entry, would boost productivity growth.
>> Productivity country profile for Iceland
Economic Survey of Iceland (survey page)
The Economic Consequences of Brexit: A Taxing Decision (main web page with paper)
Structural reforms in a difficult time (blog + paper)
Public spending efficiency in the OECD (blog + paper)