New Economic Forecast for Iceland

Landsbankinn.

Landsbankinn. mbl.is/Kristinn Magnússon

Vala Hafstað

Landsbankinn issued its biannual economic forecast today, titled “The Economic Shock of the Century,” in which it predicts that due to the COVID-19 pandemic, there will be a negative GDP growth of 9 percent in Iceland this year.

The recession is expected to be short, and next year, Landsbankinn forecasts an economic growth of 5 percent, followed by a 3 percent growth in 2022. Unemployment will be 9 percent this year, the bank predicts, dropping to 6 percent in 2022. There is, however, a great deal of uncertainty regarding the economic outlook.

mbl.is/Kristinn Magnússon

Following are the main points of the economic forecast:

A negative 9 percent economic growth in 2020, followed by a positive 5 percent growth in 2021 and 3 percent in 2022.

Export in 2020 will be down by about 27 percent, consumption down by about 7 percent, and total capital formation will diminish by nearly 18 percent.

Public consumption and state investment will increase substantially, and import will be down by almost 23 percent.

The balance of trade will be positive, due to a reduction in imports.

The number of tourists expectd in 2021 is 1.2 million and 1.5 million in 2022.

Unemployent is expected to be 9 percent on average this year (peaking at 13 percent later this year), 7 percent in 2021 and 6 percent in 2022.

The pandemic will deal a blow to all three major export industries of Iceland: tourism will be down by 67 percent this year, aluminum export down by 2 percent, and export of fish products down by 8 percent.

Housing prices will be unchanged through 2020.

Due to the weakening of the Icelandic króna, inflation will reach up to 3.5 percent the latter part of the year, but be on average 2.6 percent in 2021 and 2022.

The key interest rate of the Central Bank of Iceland will continue going down, getting as low as 0.5 percent.

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