Eco­nom­ic fore­cast for 2023-2025: Slower rhythm suc­ceeds rap­id turn­around

24 April 2023

A new macroeconomic forecast from Landsbankinn Economic Research expects to see 3.2% economic growth in 2023 and is considerably more optimistic than the department’s forecast from October 2022. One of the main reasons for optimism is the more positive outlook in the travel sector.

  • Economic Research forecasts 2.1 million tourist arrivals this year and 2.5 million in 2025, which would be a record.
  • The policy rate is expected to be raised by another percentage point and to peak at 8.5%. A rate-cutting cycle is not expected to commence until the second quarter of 2024.
  • Economic Research assumes that inflation has reached a high point and that it will recede slowly but steadily to stand at 4.5% at year-end 2025.
  • According to the forecast, price changes in the real estate market will be limited for the remainder of this year and housing prices will on average be 4.8% higher than in 2022.
  • The Icelandic króna (ISK) is expected to appreciate, foreign trade to be more or less balanced and purchasing power to increase, though not by much.

Una Jónsdóttir, Head of Landsbankinn Economic Research:

“We are settling into a slower rhythm leading up to the forecast horizon, compared to the robust growth in previous years, and expect to see the economy achieve a new balance. We expect rather strong economic growth this year, stronger than we previously anticipated. The policy rake hike series is on-going, in our opinion, and we expect to see an increase of one more percentage point before entering into a rate-cutting cycle. We expect the ISK to appreciate and that the economy will trend towards a balance in foreign trade.

The principal uncertainty factors are the influencing components of inflation, such as salary development in coming years, with collective bargaining agreements in the private sector expiring in the near future, but also development of the ISK exchange rate and domestic demand.”

Economic forecast 2023-2025: Slower rhythm succeeds rapid turnaround

You may also be interested in
8 July 2024
Weekly bulletin 8 July 2024
High interest rates have encouraged savings and detracted from demand in the economy. Household deposits had grown by 20% in May this year from the same month in 2023, according to the Central Bank of Iceland’s (CBI) newly published Hagvísar. Demand deposits have increased most.
Litríkir bolir á fataslá
1 July 2024
Weekly bulletin 1 July 2024
The consumer price index (CPI) rose by 0.48% in June. As a result, inflation measured 5.8%, down from 6.2%. Turnover based on March-April VAT reports contracted by 4.6% in real terms and the wage index rose by 0.2% in May, according to figures released by Statistics Iceland last week.
24 June 2024
Weekly bulletin 24 June 2024
The housing price index was up by 1.4% in May and the rental price index by 3.2%, according to figures published last week. While the Bank of England maintained an unchanged policy rate, the Swiss National Bank lowered its rate by 0.25 percentage points. Of most interest domestically this week is without doubt the CPI, to be published by Statistics Iceland on Thursday.
Krani með stiga
18 June 2024
Weekly bulletin 18 June 2024
Last week, we saw the publication of unemployment figures, tourist numbers and domestic payment card turnover in May. The US Federal Reserve kept its policy rate unchanged. Later today, the Housing and Construction Authority (HMS) releases the housing price index.
Seðlabanki Íslands
10 June 2024
Weekly bulletin 10 June 2024
The European Central Bank (ECB) lowered its policy rate last week. Stronger labour market figures from the US than generally expected increase the likelihood that the Federal Reserve will postpone initiation of rate cuts.
3 June 2024
Weekly bulletin 3 June 2024
Domestic product contracted by 4% in the first quarter of the year and inflation measured 6.2% in May, slightly higher than predicted.
Íslenskir peningaseðlar
13 May 2024
Weekly bulletin 13 May 2024
Household deposits have grown considerably alongside rising interest rates. This has resulted in greatly increased interest income for households, in fact in excess of interest expenses.
6 May 2024
Weekly bulletin 6 May 2024
A majority of the market now consider the monetary policy stance too tight. This opinion has become much more pervasive than in April, in response to steadily growing restraint alongside receding inflation and unchanged interest rates.
Fólk að ganga við Helgafell
29 April 2024
Weekly bulletin 29 April 2024
Economic growth will be limited in coming years according to our newly published macroeconomic forecast up to and including 2026. We forecast 0.9% growth this year, 2.2% next year and 2.6% in 2026. We expect inflation to recede down to 5.5% by the fourth quarter of this year. A rate-cutting cycle will begin in October, so our forecast, and we expect the economy to pick up speed alongside falling interest rates.
Fólk að ganga við Helgafell
29 April 2024
Economic forecast for 2024-2026: Growth despite high interest rates
Landsbankinn Economic Research forecasts limited economic growth this year. Inflation remains persistent and rate cuts aren’t expected until this fall.

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