Transcript of the Video Message by Angel Gurría
10 June 2020 - OECD, France
Prime Minister Katrín Jakobsdóttir, Ministers, Members of Parliament, Governor Ásgeir Jónsson, ladies and gentlemen,
It is an honour to be invited to address the Icelandic Economic Council today. We are here to address one of the biggest challenges the world has faced, the COVID-19 crisis, with a focus on its impact on small economies, such as Iceland’s.
Let me start by praising Iceland for your unprecedented efforts at containing the epidemic and its economic impact, your rollout of a mass testing campaign through your partnership with DeCODE Genetics, and swift implementation of targeted economic support measures is impressive. These efforts have led Iceland to become a role model for many countries during this crisis.
COVID-19 is the worst pandemic in more than a century, disrupting our economies and societies, as well as health systems, jobs and well-being. The economic impact is dire. Household income has declined sharply. Unemployment has soared to unprecedented levels and inequality is likely to rise. We are facing the deepest recession since the Great Depression in the 1930s.
The recovery is uncertain, but we are pretty sure it’s going to be slow. In many countries, it is possible that the equivalent of several years of per capita income growth could be lost by the end of 2021.
The crisis also demonstrates how interconnected, and at the same time vulnerable, certain economies are. Iceland’s small open economy, for example, is particularly affected by the collapse of global trade in goods and services, especially tourism.
To tackle the pandemic and its challenges, governments and monetary authorities have reacted remarkably quickly. They have helped preserve the incomes of households and companies through unemployment benefits, short-term work schemes and direct support.
They have also guaranteed private debt on a large scale. And central banks have cut interest rates and expanded their balance sheets.
Now is the time to sustain the recovery, by accelerating and supporting structural reforms. Iceland needs to find a balance between firm restructuring and bankruptcy procedures in order to move workers to new and productive jobs. Iceland also needs to improve the business climate so that new firms can thrive.
In that regard, I would like to commend Iceland, as you are in the midst of an important regulatory and competition reform agenda, supported by the OECD. I would also advise you to keep an eye on government debt, which could rise to levels close to the 2009 financial and economic crisis.
Crucially, when implementing these structural changes, the transition to a low-carbon economy should be placed at the front and centre of your efforts.
Let me now turn to two sectors which are critical in helping Iceland tackle the challenges of the pandemic.
First tourism. COVID-19 has led to a major halt in tourism, which has heavily impacted the Icelandic economy. After almost a decade of rapid expansion, in 2018 tourism in Iceland contributed around 18% of GDP and 40% of total export revenue, this is far more than in any other OECD country.
New OECD estimates point to a 60% decline in international tourism in 2020 if activity resumes in July, and even an 80% decline if the recovery is delayed until December.
To tackle this challenge, Iceland is already putting in place important measures to lift travel restrictions, help tourism businesses, restore traveller confidence, and stimulate demand through marketing and promotion campaigns. Moreover, Iceland’s planned mass-testing of arriving tourists may help prevent another outbreak – it could however also dent tourists’ desire to visit the island.
The re-opening of Iceland’s tourism economy next week will need to be done in a coordinated manner. In this respect, the public and private sectors must work together to support small tourism businesses and rebuild the tourism sector. This will also be an opportunity to rethink tourism for the future. It will therefore be important to focus on introducing policies that encourage the digital, low carbon, and structural transitions needed to build a stronger and more sustainable tourism economy.
Second, innovation. Last year, Iceland published a new innovation policy – “An Innovative Iceland”. Science, technology, and innovation are indeed proving critical in these unprecedented times: both to stem the spread of the coronavirus, and to enact measures that support the economic recovery.
The crisis is also affecting innovators, notably start-ups and small firms. The employment share of small and medium-sized firms is larger in Iceland than in the OECD, but their productivity is lower, pointing to the need to raise their innovative potential. Here, policy interventions could address short-term liquidity and availability of funding, alongside initiatives to help start-ups grasp new business opportunities that may arise during and after the pandemic.
Looking beyond the crisis, maintaining stable public R&D investments and leveraging opportunities to build more sustainable, inclusive and resilient STI systems for the future is critical. In this respect, Iceland is taking action, and has prioritised support for innovation through its “COVID-19 response package” by increasing investments and providing higher reimbursement rates for R&D.
Prime Minister, Ministers, Members of Parliament, Ladies and Gentlemen,
Iceland’s rapid policy efforts have helped the country weather the COVID-19 crisis. You have demonstrated resilience and conviction. Looking ahead, it remains paramount to keep this momentum going. The OECD is confident that Iceland has the determination to keep leading the way and you can count on us to support you in your efforts to promote a resilient, inclusive, green and sustainable recovery. Thank you.