News

Robust economic growth - purchasing power lags behind

Landsbankinn Economic Research forecasts 6.5% economic growth this year, record growth since 2007, only for considerable cooling to follow. Per the forecast, the policy rate will enter a rate-cutting cycle in the latter part of 2023 while inflation remains about 4% until 2025. Purchasing power looks set to contract by 0.4% this year but to pick up to the tune of 0.5% next year - a much slower increase than in recent year.
Hagspá 2022
19 October 2022 - Landsbankinn

These are among the highlights of the economic forecast of Landsbankinn Economic Research, looking forward to year-end 2025. Economic Research presents its forecast in Harpa, at 8:30-10:00 on Wednesday, 19 October, and the presentation will also be published to Landsbankinn’s website.

Live stream from the presentation

Una Jónsdóttir, Head of Landsbankinn Economic Research:

“Following twelve years of continued growth in purchasing power, a historically long period, we now expect purchasing power to contract this year and for growth to slow from what we have become used to next year. There are various indications of cooling in the economy and despite a generally favourable outlook domestically considerable uncertainty exists, notably related to the Russian invasion of Ukraine and its impact on the global economy. Significant uncertainty is also tied to collective bargaining agreements. Our forecast for robust economic growth this year is based primarily on an increase in tourist arrivals to Iceland as compared with our May forecast. Economic growth in coming years is largely dependent on the number of travellers as well. Should international economic conditions deteriorate from our assumptions and interest in travel wane, lower growth is to be expected. Conversely, more positive developments will boost travel and contribute to stronger economic growth.”

Highlights:

  • Landsbankinn Economic Research expects domestic product to increase by 6.5% this year and 2.1% next year.
  • Economic growth is heavily dependent on developments in the travel sector and will as such be considerably lower next year than this year, due to slower growth in tourist arrivals. Economic growth will be 3% in 2024 and 1.9% in 2025.
  • Economic Research expects 1.7 million tourist arrivals in Iceland this year and 1.9 million in 2023. This figure will rise to 2.3 million in 2024 and 2.5 million in 2025.
  • Export will increase by 22.4% between years in 2022. Growth will be limited next year (3.7%) due to a slower increase in tourist arrivals and a contraction in capelin fishing. Export growth will pick up in 2024 (7%), provided conditions have improved for European households.
  • The outlook is for increased import this year, explained among other things by Icelander’s wanderlust in summer. Economic Research assumes 18.6% import growth this year, slowing significantly in coming years to lie between 2.2-3.5% in 2023-2025.
  • The trade balance will be negative this year by 2.2% of GDP, if the forecast holds. Towards the forecast horizon, the trade balance will transition from a deficit to a surplus which is expected to peak in 2025, at 1.9% of GDP.
  • The ISK will appreciate a little next year and more significantly in 2024, when Economic Research expects to see a trade surplus forming.
  • Private consumption has increased a great deal this year to date, driven among other factors by Icelanders travelling abroad. Economic Research expects the increase to tally 6.7% this year but to slow to 2% growth next year and 3-3.3% in the remaining years.
  • One of the main uncertainty factors in the forecast is the labour market, heading into negotiations for collective bargaining agreements. The labour market has been strong, the wage drift significant and businesses have experienced a labour shortage. Economic Research expects a 7.6% wage increase this year and 7.1% next year, more or less in line with developments in recent years.
  • Unemployment is expected to remain fairly steady throughout the forecast period, averaging 3.2% next year.
  • Inflation has peaked and is forecast to measure 6.5% on average next year. This is quite a reduction from the 8.1% inflation Economic Research forecasts this year. The CBI’s inflation target is not expected to be reached during the forecast period.
  • The assumption is that the CBI’s rate hike cycle has likely come to an end. The current interest rate level will be maintained over the coming year and a rate-cutting programme will not be launched until the third quarter of next year.
  • Housing price increases are finally cooling down and the forecast is for a maintenance of the current status quo in the coming months. In general, housing prices will increase by around 5% next year, which is lower than the average change since the turn of the century and quite a departure from the 22% price rise of this year.

Landsbankinn Economic Research’s forecast for 2022-2025

You may also be interested in
30 Nov. 2022

Key information about pension savings

In Iceland, all wage earners aged 16 to 70 are obligated to pay a percentage of their wages toward mandatory pension savings.
Greitt með Aukakrónum
16 Nov. 2022

Aukakrónur now on your phone

You can now use your phone to pay with Aukakrónur! Simply add your Aukakrónur card to Google Wallet or Apple Wallet through Landsbankinn’s app and select Aukakrónur when you pay for goods and services with one of our 200 partners throughout Iceland.
11 Nov. 2022

Viggó Ásgeirsson to Landsbankinn

Viggó Ásgeirsson, Managing Director and one of the founders of Meniga, has been hired as Head of Business Development in Landsbankinn’s Personal Banking division.
New temp image
11 Nov. 2022

Landsbankinn Corporate Finance to manage listing of Blue Lagoon

Blue Lagoon has engaged Landsbankinn Corporate Finance and Fossar Investment Bank to advise on the process for the company’s listing on Nasdaq Iceland. The company is aiming go public next year subject to market conditions.
11 Nov. 2022

Guðrún and Hildur new department heads at Landsbankinn

Guðrún S. Ólafsdóttir and Hildur Sveinsdóttir have accepted new positions as department heads in Landsbankinn’s Personal Banking division. Both women possess a great deal of experience of work in financial markets.
New temp image
9 Nov. 2022

Changes to fixed rates on new housing mortgages

Fixed rates on new non-indexed 36-month housing mortgages increase by 0.15 percentage points (pp) and fixed rates on new non-indexed 60-month housing mortgages by 0.25 pp. Fixed rates on new 60-month inflation-indexed housing mortgages increase by 0.20 pp. The changes enter into effect as at 10 November 2022.
Akureyri
4 Nov. 2022

Investment company Kaldbakur purchases the Landsbankinn building in Akureyri

Landsbankinn has accepted the offer of Akureyri-based investment company Kaldbakur for its building, commonly known as Landsbankahúsið, at Ráðhústorgið in Akureyri. Seven offers were received and Kaldbakur made the highest bid. The purchase price is ISK 685 million. Landsbankinn will operate out of the building until it relocates.
Bergið
4 Nov. 2022

Landsbankinn makes a donation to Bergið headspace in the name of Exceptional Companies

As in previous years, Landsbankinn has made a donation to a good cause in the name of all Exceptional Companies recognised by Creditinfo. This year, the donation of ISK 4 million, went to Bergið headspace.
28 Oct. 2022

Changes to the login process for online banking and the app

Please note that it is no longer possible to log in to online banking and the app with a username and password. This change entered into effect on 10 October. The aim of the change is to enhance security in the login process.
26 Oct. 2022

Three new music videos on Landsbankinn’s Iceland Airwaves site

We’re excited to premier three new music videos on our Iceland Airwaves site today. Since 2014, we have produced 38 music videos in collaboration with Icelandic musicians playing Iceland Airwaves. All in all, these videos have had 3.3 million views.
Cookies

By clicking "Allow All", you agree to the use of cookies to enhance website functionality, analyse website usage and assist with marketing.

More on cookies