Ro­bust eco­nom­ic growth - pur­chas­ing power lags be­hind

We forecast 6.5% economic growth in Iceland this year, the greatest since 2007. Robust growth in export sectors coupled with strong domestic demand has driven handsome GDP growth in the past year.
Hagspá 2022
19 October 2022 - Landsbankinn
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19 May 2022
Growth in the shadow of inflation
A great many things have changed since Landsbankinn Economic Research published its last macroeconomic and inflation forecast in October last year. The Covid-19 pandemic, with all its restrictions on consumption and daily life, has subsided and people are again free to travel. Icelandic consumption patterns in the past few months have shown clear signs of increased overseas travel and the stream of travellers to Iceland is also increasing. In general, the outlook can be described as bright. We forecast 5.1% economic growth this year, upping our forecast somewhat from last year, and expect growth to be driven by an increase in tourist numbers, a total of 1.5 million this year. Travellers to Iceland numbered 690,000 in 2021.
26 Oct. 2021
Macroeconomic forecast 2021-2024: Robust economic recovery has begun
Around 89% of Icelanders, 12 years and older, are now fully vaccinated against Covid-19. The rate of new infections is still rather high yet serious illness is rare. Developments in Iceland’s main trading partner countries are similar, with vaccination rates a little lower than here. Despite a set-back to expectations of achieving herd immunity through vaccination caused by the delta variant, the economic outlook for 2021 has improved slightly. This year to date, foreign travellers to Iceland have increased rather less than we forecast in May. At the same time, average spending per tourist has been considerably higher. Development of export income from the travel sector has been more positive than we expected. Private consumption growth has also been more robust than we forecast in spring and unemployment levels have fallen more quickly. As a result, we expect 5.1% economic growth in 2021 following a 6.5% contraction in 2020. The outlook is for even more powerful growth in 2022, or around 5.5%, followed by more conservative growth in the latter part of the forecast period. Inflation has proved to be more persistent than indicated in May. This is primarily due to tension in the housing market, where price increases have been both higher and more persistent than we anticipated. We expect inflation to peak soon and to start to subside in early in 2022. The outlook is for a slow and steady decline in inflation as the year progresses and the international impact of the pandemic on such things as commodities prices and freight cost recedes. We do not expect inflation to hit the Central Bank’s target until mid-2023. Robust economic growth and persistent inflation will press policy rate hikes in careful yet decisive steps over the next 1-2 years and we expect the CB’s key interest rate to rise over 4% in the latter half of 2023.
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