Landsbankinn’s Economic Forecast for 2020-2023: Strong economic recovery starts next fall
Landsbankinn Economic Research's macroeconomic and inflation forecast for 2020-2023 expects domestic product to contract by 8.5% in 2020, due to the Covid-19 pandemic. The contraction period will be relatively short-lived yet economic recovery will be slow, despite a robust pick-up next fall.
27 October 2020
Economic Research forecasts 3.4% economic growth in 2021 and 5% annual growth in 2022 and 2023. The forecast is for 7.8% unemployment on average this year, rising to 8.4% in 2021 before declining to 5.8% in 2022 and 4.8% in 2023.
Economic Research’s forecast is based on the assumption that one or more vaccines will be approved around the turn of the year. General herd immunity will be achieved in Iceland and in main trading partner countries by the third quarter of 2021. Preventative measures will nevertheless put a damper on the increase of tourist arrivals until next fall.
Daníel Svavarsson, Head of Landsbankinn Economic Research: “The high degree of risk in these unprecedented times cannot be overstated, both in connection with the development of the pandemic and its economic ramifications. Our baseline forecast assumes that economic recovery will begin in the second half of 2021 alongside a decline of the pandemic, achieved through successful vaccines and herd immunity both in Iceland and in main trading partner countries. There are no certainties yet the current status of vaccine research indicates this timeline. The contraction this year is set to be the greatest contraction in the history of the Icelandic Republic. On the other hand, the contraction period will be short; considerably shorter than the last one.”
Other key points from the macroeconomic forecast of Landsbankinn Economic Research:
- Export is expected to fall by little less than 30% this year, mostly due to the contraction in the travel industry.
- Private consumption contracts by 5.5% this year - the deepest decline since 2009.
- Total capital formation contracts by over 10%.
- Public consumption and investment increases considerably, alongside a sharp decline in import to the tune of 22%, not least due to the drop in overseas travel.
- Around 500,000 tourists are expected to visit Iceland this year, 650,000 next year, 1.3 million in 2022 and 1.9 million in 2023.
- Inflation will be slightly above the Central Bank’s target until the second half of 2021, because of ISK depreciation this year, then average 3.1% next year, 2.7% in 2022 and 2.6% in 2023.
- The policy rate will be unchanged at 1% throughout 2021, rise to 1.75% in 2022 and stand at 3.5% at year-end 2023.
- The wage index increases in accordance with collective bargaining agreements, by 5.8% between 2019 and 2020. It rises by 6.1% in 2021, 5% in 2022 and 4% in 2023.
- Industrial investment is expected to contract by 16.9% this year but will start to grow again as of 2021.
- The pandemic is not expected to have any noteworthy long-term effect on the fisheries and seafood industries.
- Aluminium production is expected to contract by 21.1% this year.
- A 16% contraction is expected in housing investment this year, followed by 2.5% annual growth in 2021-2023. Housing prices will rise by 4.5% between years this and average 4% annually to the forecast horizon.
- The Treasury deficit is expected to total around ISK 600 billion in 2020 and 2021.
- Despite the drop in export activity, there will be a slight current account surplus this year (+0.1% of GDP), a minor deficit next year (-0.3% of GDP), followed by a growing surplus in 2022 (+1.4% of GDP) and 2023 (+3.4% of GDP).
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Today is the last day the Landsbankinn branch in Austurstræti 11 is open and the doors close at 16:00. All activities move to the Bank’s new branch in Reykjastræti 6, which is already open.
21 Sept. 2023
Customers can buy Danish bank notes in Landsbankinn branches and ATMs throughout Iceland. We would like to advise customers that the Bank no longer accepts DKK 1,000 and 500 bills, nor any Faroe Islands króna bills. There are no changes to transactions in DKK 200, 100 and 50 bills. Cash transactions comply with the Act on Actions to Combat Money Laundering and Terrorist Financing. Tighter rules in Denmark limit the reception of bank notes by foreign banks and Landsbankinn is as a result no longer able to accept DKK 1,000 and 500 bills.
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14 Sept. 2023
We’d like to call your attention to changes to the RSA SecurID app used for secure login and payments in corporate online banking.
13 Sept. 2023
The branch at our new headquarters in Reykjastræti 6 opens today. Cashier services are available from 10:00-16:00 and ATMs and other self-service equipment is accessible around the clock.
12 Sept. 2023
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31 August 2023
In light of the recent interest rate decision of the Central Bank of Iceland, the following changes will be made to Landsbankinn’s interest rates. Interest rate changes also have regard for market rates and other funding terms of Landsbankinn.
31 August 2023
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23 August 2023
On 13 September, the opening hours of seven branches will be shortened by three hours and will as a result be 12:00-15:00. While general opening hours will be shorter, customers can still make appointments to visit these branches between 10:00-16:00 and book remote meetings until 18:00, meaning that actual service hours remain unchanged. ATMs are accessible around the clock in all these locations.
18 August 2023
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