Iceland: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Iceland

International Monetary Fund

No 2023/217, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2023 Article IV Consultation discusses that the Icelandic economy has shown remarkable resilience and rebounded quickly from the multiple shocks in recent years. The economy is currently operating well above potential, which, together with high import and house prices, has pushed inflation significantly above target, and contributed to external imbalances. While growth is expected to moderate to 3.2 percent in 2023 and 1.9 percent in 2024 on headwinds from abroad and tight macroeconomic policies, the medium-term outlook is favorable. In the near term, policy tightening coupled with headwinds from the deteriorating terms of trade will dampen domestic demand and reduce imbalances, though private consumption growth is likely to remain robust on a further drawdown of household savings and strong employment growth supported by continued immigration. Banks could face funding pressures if pension funds were to re-direct their investments from domestic to foreign markets.

Keywords: inflation expectation; headline inflation; monetary policy horizon; deteriorating inflation outlook; cash flow; policy tightening; Inflation; Fiscal stance; Pension spending; Financial Sector Assessment Program; Government finance statistics; Global (search for similar items in EconPapers)
Pages: 90
Date: 2023-06-23
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