Iceland

RGE's Q3 2010 Iceland Outlook

Iceland is experiencing a long recession and the economy will continue contracting on an annual basis in 2010, unlike other Nordic economies. Our forecast for 2010 remains broadly unchanged from the Q2 Outlook and we expect GDP to contract by 3.2% this year. In 2011, we envisage the economy growing by 2.0% on the back of increased domestic demand. However, there are numerous risks to our baseline scenario, which assumes that the “Icesave dispute” over deposit guarantees with the UK and Dutch governments will be resolved by early 2011. We also believe the third IMF review will not be delayed much beyond September 2010, and expect a gradual relaxation of capital controls to follow.  Several factors—such as the island’s shaky banks, which are still surrounded by legal uncertainties—could erode confidence in Iceland’s economy and delay the lifting of capital controls, postponing the recovery.

Read the Q3 2010 Iceland Outlook.