A new issue of Statistical Series, presenting an economic forecast for 2019–2025, is now available. Revised national accounts figures show that Iceland‘s GDP grew by 4.8% in 2018. The outlook for 2019 has not changed from the last economic forecast in May as GDP is expected to decrease by 0.2% this year. However, it is now expected that the turnaround in 2020 will be slower than previously presumed, with GDP growing by 1.7%. For 2021-2025, growth is expected to average around 2.6% per annum.
Private consumption growth is expected to slow down this year as short term indicators show slow growth in the second half of the year and rising unemployment. Wage increases in the private sector’s newly signed collective wage agreements were more moderate than expected and there have been delays in wage negotiations for government employees. Households’ economic expectations have recovered from earlier this year. Private consumption is estimated to grow by 1.8% this year and by 2.6% on average per annum in 2020-2025. Government consumption growth in 2019-20 is forecasted to be stronger than expected in the last economic forecast and will grow by 2.5% and 2.4% respectively.
Exports are expected to contract by 5.5% this year, mainly due to a decline in tourism but also to some extent a decrease in marine products and aluminium exports. Net exports will have a positive contribution to growth in 2019. Exports are estimated to grow by 1.7% in 2020, with moderate recovery in tourism and exports of marine products.
Investment is expected to decrease by 9.1% this year mainly due to over 15% decrease in business investment and an 11.5% contraction in public investment, mostly because of baseline effects. Housing investment is predicted to remain strong this year with 17% growth. Investment will pick up in 2020 and its share of GDP will be close to its long term average.
Inflation prospects have improved slightly from the last economic forecast and the CPI-inflation is expected to rise by 3% on average this year but will decrease towards the end of the year. Inflation is estimated to be 2.6% in 2020 and will remain close to the Central Bank’s 2.5% target inflation rate for the remainder of the forecast period.
The last economic forecast was published 10 May 2019. The next forecast is scheduled for February 2020.