Positive Economic Growth Predicted

According to a new Arion Bank economic forecast, the Icelandic economy will grow by 0.3 percent this year, Morgunblaðið reports. For 2020, 2021 and 2022, the bank predicts a positive economic growth of 0.6, 2.0 and 2.7 percent, respectively. By comparison, the economy grew by 4.8 percent last year.

The bank expects the number of foreign tourists coming to Keflavík International Airport to be down by 15 percent this year, but to increase again in 2020, 2021 and 2022 by 1, 5 and 4 percent, respectively.

Earlier this year, the bank had predicted a decrease in GDP, but Erna Björg Sverrisdóttir, the bank’s chief economist, explains why the forecast has changed for the better:

First, the economy developed more positively for the first nine months than had been expected. Second, imports decreased much more than expected - by ISK 100 billion (USD 823 million; EUR 741 million) for the first nine months.

“The third reason is that the export industries have performed better than anticipated,” she states. “The export value of seafood products has increased by 3 percent, at a fixed exchange rate, for the first ten months of the year. As far as the tourism industry is concerned, tourists now stay [in the country] longer and spend more per person than before. Therefore, income decline in the [tourism] industry can be expected to be somewhat less than we expected at the beginning of the year.”

Growth in fish farming has not rendered that industry large enough to change the big picture, she adds. If, on the other hand, the airline Play becomes a reality, its operation could bring an additional 120,000 tourists to the country – the equivalent of ISK 25 billion in foreign earnings, although that won’t change the big picture in the short term.

Industrial investment, however, is down - six quarters in a row - and this, Erna states, is a reason for worry.