A new issue of Statistical Series, presenting an economic forecast for 2019-2024, is now available.

Preliminary national accounts figures show that Iceland‘s GDP grew by 4.6% in 2018. The outlook for 2019 has changed from the last economic forecast in February. GDP is now expected to decrease by 0.2% this year but growth is expected to pick up in 2020 and reach 2.6% per annum on average during 2020-2024.

Taking into account recent development of short term indicators, it is expected that private consumption will grow by 2.4% this year. It is possible that the first few months have been characterized by precautionary savings due to uncertainty surrounding collective wage negotiations in the labour market. Rise in real wages along with changes in the income tax, support more private consumption growth in the course of the forecast period.

The short term outlook for exports have grown significantly worse with the bankruptcy of one of Iceland‘s two major airlines and with a supply shock in marine exports. Exports are presumed to decrease by 2.5% this year, mainly because of declining service and marine exports. The supply shock in services exports is estimated to be temporary. Moderate growth in exports is expected in the next years, and are estimated to increase by 2.5% in 2020.

Investment is forecasted to decrease by 5.7% in real terms this year, mainly due to business investment. Housing investment will remain strong with 16.2% growth in 2019. Public investment is expected to contract by 3.5% this year, mainly because of base line effects and delays in infrastructure investments.

CPI-inflation is expected to be higher than it has been in recent years but still moderate. The effects of the depreciation of the krona in the fall of 2018 are presumed to last well into this year. Newly signed collective wage agreements in the labour market are in line with previous estimates and are not expected to affect inflation beyond what was presumed in the February forecast. Inflation is expected to peak in the years 2019 and 2020, reaching 3.4% and 3.2% respectively, before declining towards the Central Bank’s target inflation rate.

The last economic forecast was published 22 February 2019. The next forecast is scheduled for November 2019.

Economic forecast, summer 2019 - Statistical Series