Macroeconomic forecast 2018-2020

Executive summary

The current decade has been a time of radical change in the Icelandic economy. The lean years in the wake of the 2008 crisis were followed by a robust upswing. By some measures, living standards in Iceland have never been better. Furthermore, the upswing has not come at the cost of stability to the extent that had been virtually the norm in Iceland in earlier decades.

Now, however, we believe the end of the growth episode is in sight. We expect GDP growth to measure 3.4% this year and 1.5% in 2019. The weaker growth projected for the coming year is due to a contraction in business investment, modest private consumption growth, and relatively weak growth in services exports. In essence, then, these main drivers of the past few years’ growth spurt will take a break next year.
The outlook is for growth to pick up again in 2020, rising to about 2.8%, buoyed up by livelier private consumption growth, a resumption of growth in business investment, and continued growth in other investment and exports.

Macroeconomic forecast September 2018