Iceland “among rich countries again”

“Iceland is returning to the club of rich-world economies it inhabited before 2008,” trumpets a piece on Bloomberg’s business news website yesterday.

“As matters have been developing lately, there’s reason to be pretty optimistic,” Finance Minister Bjarni Benediktsson is quoted as saying regarding the Icelandic economy.

Statistics others can only dream of

Iceland’s economy is forecast to grow by 4.2% this year, almost three times the growth rate of the euro zone according to European Commission estimate. Unemployment is below 3% and the country enjoys a health trade surplus equivalent.

It is also Iceland’s stability which, according to Bloomberg sources, helps paint such a rosy picture. “No crazy oligarchs, tribal warlords or clan mafias, just lots of fish,” financial analyst Anthony Lui is quoted as saying.

Some reservations

The article does, however, express certain reservations about the current and future situation of the Icelandic economy.

Capital controls remain in place and Iceland “may not reclaim its former AAA rating any time soon”. Currently at Baa2 on the Moody’s rating scale, Iceland is only just above junk bond status.

There are also concerns about “domestic overheating”, rising inflation and exchange rate imbalances.

Repeating the mistakes of the past?

“The question now is whether the island will be able to emerge from its capital controls with much higher interest rates than almost everywhere else without repeating the imbalances that triggered its most recent collapse,” sums up Omar Valdimarsson, author of the piece.

If it cannot, Iceland may risk, in the words of Lui, “returning to the same leaky Viking ship again,” referring to the 2008 economic crisis.

The full Bloomberg article can be found here.