The Icelandic Economy Current State, Recent Developments and Future - PowerPoint PPT Presentation

Á eftir að uppfæra The Icelandic Economy Current State, Recent Developments and Future Outlook 2018 edition

TABLE OF CONTENTS 3 KEY FACTS 4 FOREWORD 5 1. ECONOMIC LANDSCAPE 19 2. INSTITUTIONAL FRAMEWORK 29 3. FINANCIAL SECTOR 37 4. DOMESTIC SECTOR 46 5. RESOURCE SECTOR 54 6. INTERNATIONAL SECTOR 61 7. FUTURE PROSPECTS ACCESS THE FULL REPORT HERE Front page artwork: Inga Dóra (Eins og var) Iceland Chamber of Commerce | 2

KEY FACTS Key facts about the economy Did you know?   The total land area is 103,000 km 2 Iceland‘s Gross Domestic Product and the population is 360,384 (GDP) per capita in 2018 was USD 55,917 (PPP)  Iceland‘s parliament, Althingi is the  oldest surving parliament in the The currency is Icelandic Króna (ISK), world, founded in 930 AD USD 1=ISK 121 (25 July 2019)   Former president Vigdís In 2018 unemployment was 2.7% and Finnbogadóttir became the first in July 2019 inflation was 3.1% democratically elected female head  Iceland‘s current account surplus in of state in 1980 2018 was 2.9% of GDP  Iceland is a member of NATO but  The main exports are tourism (39% of does not have any military forces total), seafood (18%) and aluminium  Iceland‘s search and rescue services (17%) are solely volunteer-run  Government debt-to-GDP ratio in 2018 was 38% Iceland Chamber of Commerce | 3

FOREWORD ÁSTA S. FJELDSTED “What goes up must come down.” Those words of Sir Edward Newton have undoubtedly come to someone’s mind in recent years watching the Icelandic economy outgrowing most other OECD countries. Particularly since Iceland faced an unprecedented financial and economic crisis Ásta S. Fjeldsted when its three major banks, which assets Managing Director, Iceland Chamber amounted to over 9-fold GDP collapsed in the of Commerce matter of days just over a decade ago. This recovery story is something Icelanders and others can learn from and is ingrained in this report. Iceland Chamber of Commerce | 4

1 Current ECONOMIC Landscape LANDSCAPE Iceland Chamber of Commerce | 5

Figure 1.1 Iceland has outgrown most developed countries in recent years Country rankings, GDP per capita (PPP 1 adjusted) 1980 ranking 2016 ranking United Arab Emirates Qatar 1 Qatar Macao SAR Saudi Arabia Luxembourg Kuwait Singapore Libya Brunei Darussalam Bahrain Ireland Switzerland Norway Luxembourg United Arab Emirates Norway Kuwait United States Switzerland 10 Canada Hong Kong SAR Netherlands United States Denmark San Marino Germany Netherlands Austria Saudi Arabia Belgium ICELAND France Taiwan Province of China Sweden ICELAND Italy Germany Sweden Australia 20 Australia Austria Finland Denmark The Bahamas Bahrain Greece Austria Gabon Canada Singapore Belgium New Zealand Oman United Kingdom Finland Japan France Oman United Kingdom 30 Spain Malta Venezuela Japan Trinidad and Tobago Korea Puerto Rico Spain Ireland New Zealand Israel Cyprus Hong Kong SAR Puerto Rico Hungary Italy Argentina Aruba Cyprus Israel 40 1980 1986 1992 1998 2004 2010 2018 1 Purchasing Power Party Sources: IMF World Economic Outlook; Iceland Chamber of Commerce Iceland Chamber of Commerce | 6

Figure 1.2 Iceland ranks highly in numerous competitive indices Competitiveness Rankings (Iceland‘s most recent rank 1 / total number of countries) Iceland’s ranking # of countries ranked Gender Equality (WEF) 1 149 Global Peace Index (IEP, vision of humanity) 1 163 Democracy Index (The Economist) 2 167 Social Progress Index (SPI) 2 146 Human Development (UN) 6 189 Media Freedom (Freedom House) 9 199 Environmental Performance Index (YALE) 11 180 Economic Freedom (HF) 11 180 Corruption (Transparency Int.) 14 180 Global Innovation Index (INSEAD) 20 126 Property Rights Index (IPRI) 20 125 Doing Business (WB) 21 188 Competitiveness (IMD) 24 63 Global Competitiveness Index (WEF) 24 140 Globalization (KOF) 47 203 1 Sources obtained May 2019, with the exception of the Global Innovation Index, which was obtained in July 2019 Source: Respective websites Iceland Chamber of Commerce | 7

Figure 1.3 Iceland‘s competitiveness has slowly but steadily been improving this decade Iceland’s Competitiveness in IMD’s report (Strenghts, weaknesses and recent developments) 2011 2012 2013 2014 2015 2016 2017 2018 2019 Iceland‘s overall 20 20 23 24 24 25 26 29 31 competitiveness Iceland’s Strengths Weaknesses position Economic High Size of the 54/63 1 employment economy performance Societal Government Taxes 15/63 2 framework efficiency Attitudes Business Finances 19/63 3 and values efficiency Basic Scientific 13/63 Infrastructure 4 infrastructure infrastructure Sources: IMD Business School; Iceland Chamber of Commerce Iceland Chamber of Commerce | 8

Figure 1.4 The economy has been experiencing robust growth but a mild recession is anticipated this year GDP growth (Percent) Actual Projected 9.4 8.0 6.6 6.3 5.2 4.7 4.6 4.6 4.1 3.9 2.4 2.6 2.3 2.1 2.0 1.9 1.3 0.7 -0.4 -3.4 -6.8 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sources: Statistics Iceland ; Central Bank of Iceland (Monetary Bulletin 2019/2); Iceland Chamber of Commerce Iceland Chamber of Commerce | 9

Figure 1.5 Iceland‘s economy was one of the fastest growing in the world in 2016, but growth has since slowed Annual GDP growth 2014 to 2018 (Percent) Iceland Other Nordics Euro area OECD total 6.6 4.7 4.6 4.6 2.6 2.6 2.4 2.4 2.3 2.2 2.1 2.1 1.7 2.0 1.9 1.8 1.8 1.8 1.4 1.2 2014 2015 2016 2017 2018 Sources: OECD statistics; Iceland Chamber of Commerce; Statistics Iceland Iceland Chamber of Commerce | 10

Figure 1.6 Private debt declined significantly after the financial crisis but has increased slightly in the last two years Corporate and Household Debt (Percent of GDP) Corporate debt Household debt 347 350 300 270 250 233 200 164 158 150 100 50 0 2004 2006 2008 2010 2012 2014 2016 2018 Source: Central Bank of Iceland (Monetary Bulletin 2019/2) Iceland Chamber of Commerce | 11

Figure 1.7 Unemployment is rising again after a gradual decline since 2010 Unemployment Rate (Percent; yearly average) 9 8 7.6 7 6 5.4 5 4 3.0 3.0 2.7 3.0 3 2 1 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 1 1 First quarter Source: Statistics Iceland Iceland Chamber of Commerce | 12

Figure 1.8 Inflation has been near the Central Bank’s inflation target for over five years Annual Inflation Rate (Percent) Inflation Inflation excluding housing Central Bank’s inflation target 25 21.0 20 18.6 15 10 5 0 -5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: Central Bank of Iceland; Statistics Iceland; Iceland Chamber of Commerce Iceland Chamber of Commerce | 13

Figure 1.9 Interest rates in Iceland appear to be converging to other developed economies Central Bank Key Interest Rates (Percent) Iceland Euro area USA 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.75% 3.0% 2.50% 2.5% 2.0% 1.5% 1.0% 0.5% 0.00% 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: Central Bank of Iceland; Iceland Chamber of Commerce Iceland Chamber of Commerce | 14

Figure 1.10 The devaluation of the Króna balanced out a persistent current account deficit and supported a surplus since 2009 Current Account Balance 1 (Percent of GDP) Current account balance Average 2000-2008 Central Bank forecast Average post crisis 10 +5.2% 5 0 -5 -10 -10.9% -15 -20 -25 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 1 Underlying current account, excludes the effects of the failed banks‘ estates. The current account is a broader measure than trade balance and also takes into consideration factor income and financial transfers. Sources: Central Bank of Iceland; Iceland Chamber of Commerce Iceland Chamber of Commerce | 15

Figure 1.11 Even though the Króna has depreciated in the last two years, the real exchange rate remains high EUR/ISK and Real Exchange Rate (A higher value indicates a weaker Icelandic Króna) EURISK exchange rate Real exchange rate 1 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 0 100 +107% 150 141 200 1 Inversed values, nomalised at EUR/ISK’s initial value Source: Central Bank of Iceland Iceland Chamber of Commerce | 16

Figure 1.12 Iceland’s net foreign position has transformed with Iceland becoming a net lender to the rest of the world Iceland‘s Net International Investment Position (NIIP) (Percent of GDP) NIIP w/o estates Failed banks estates 100 21 4 0 -5 -45 -100 -105 -200 -300 -400 -375 -448 -500 -600 -654 -700 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 1 1 First quarter of 2019 Source: Central Bank of Iceland; Iceland Chamber of Commerce Iceland Chamber of Commerce | 17