Iceland: 2022 Article IV Consultation - Press Release; and Staff Report

International Monetary Fund

No 2022/193, IMF Staff Country Reports from International Monetary Fund

Abstract: This 2022 Article IV Consultation discusses that Iceland has weathered recent shocks to the economy relatively well. Well-designed policy measures and a solid health system eased the impact of the pandemic, allowing real gross domestic product and employment to recover strongly. Robust domestic demand and favorable terms of trade boosted output growth to 4.3 percent in 2021, despite slower recovery in tourism. Growth is expected to remain moderate in 2022 and the medium term. Careful policy coordination is required to entrench the recovery, stem risks and rebuild buffers to pre-pandemic levels. Policies should mitigate the flaring-up in inflation, external imbalances, and house prices. Structural reforms should facilitate economic diversification and make the economy more resilient to shocks. Diversification efforts should focus on easing regulatory burdens on start-ups and spurring innovation by leveraging Iceland’s human capital and advanced digital infrastructure. The new collective wage agreement can also foster diversification and resilience through better alignment of wage and productivity growth.

Keywords: inflation expectation; liability positions vis-à-vis nonresident; steering inflation; housing policy; data standard; rising prices; policy coordination; Inflation; Housing prices; Housing; Government finance statistics; Central bank policy rate; Global (search for similar items in EconPapers)
Pages: 78
Date: 2022-06-27
New Economics Papers: this item is included in nep-cis
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