Iceland: Economy#

Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system. Except for a brief period during the 2008 crisis, Iceland has achieved high growth, low unemployment, and a remarkably even distribution of income. The economy depends heavily on the fishing industry, which provides 40% of merchandise export earnings, more than 12% of GDP, and employs nearly 5% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Since 2010, tourism has become the main pillar of Icelandic economic growth, with the number of tourists expected to reach or exceed 4.5 times the Icelandic population in 2016.

Iceland's economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of tourism, software production, and biotechnology. In fall 2013, the Icelandic Government approved a joint application by Icelandic, Chinese, and Norwegian energy firms to conduct oil exploration off Iceland’s northeast coast, although no exploration has yet taken place. Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminum sector, boosted economic growth, and sparked some interest from high-tech firms looking to establish data centers using cheap green energy, although the financial crisis has put several investment projects on hold.

Following the privatization of the banking sector in the early 2000s, domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign currencies. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country secured over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to back government guarantees for foreign deposits in Icelandic banks. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in February 2009. Three new banks were established to take over the domestic assets of the collapsed banks. Two of them have majority ownership by the State, which intends to re-privatize them.

Since the collapse of Iceland's financial sector, government economic priorities have included stabilizing the krona, implementing capital controls, reducing Iceland's high budget deficit, containing inflation, addressing high household debt, restructuring the financial sector, and diversifying the economy. Iceland’s financial woes prompted an initial increase in public support to join the EU and the euro zone, with accession negotiations beginning in July 2010, but negotiations were suspended under the 2013 center-right government. Most macroeconomic indicators and employment have rebounded to pre-crisis levels, driven primarily by the unprecedented growth in tourism – averaging over 20% annually – following the well publicized volcanic eruption in 2010.

Economic Facts#

GDP (purchasing power parity)$16.15 billion (2016 est.)
$15.38 billion (2015 est.)
$14.8 billion (2014 est.)
note: data are in 2016 dollars
GDP (official exchange rate)$19.44 billion (2015 est.)
GDP - real growth rate4.9% (2016 est.)
4% (2015 est.)
2% (2014 est.)
GDP - per capita (PPP)$48,100 (2016 est.)
$46,200 (2015 est.)
$45,000 (2014 est.)
note: data are in 2016 dollars
Gross national saving23.5% of GDP (2016 est.)
23.5% of GDP (2015 est.)
21% of GDP (2014 est.)
GDP - composition, by end usehousehold consumption: 49.3%
government consumption: 22.5%
investment in fixed capital: 19.8%
investment in inventories: -0.1%
exports of goods and services: 52.4%
imports of goods and services: -43.9% (2016 est.)
GDP - composition, by sector of originagriculture: 5.9%
industry: 20.4%
services: 73.7% (2016 est.)
Agriculture - productspotatoes, carrots, green vegetables; mutton, chicken, pork, beef, dairy products; fish
Industriestourism, fish processing; aluminum smelting, ferrosilicon production; geothermal power, hydropower, tourism
Industrial production growth rate1.4% (2016 est.)
Labor force195,000 (2016 est.)
Labor force - by occupationagriculture: 4.8%
industry: 22.2%
services: 73% (2008)
Unemployment rate2.7% (2016 est.)
4% (2015 est.)
Population below poverty lineNA%
note: 332,100 families (2011 est.)
Household income or consumption by percentage sharelowest 10%: NA%
highest 10%: NA%
Distribution of family income - Gini index28 (2006)
25 (2005)
Budgetrevenues: $10.35 billion
expenditures: $7.911 billion (2016 est.)
Taxes and other revenues53.2% of GDP (2016 est.)
Budget surplus (+) or deficit (-)12.5% of GDP (2016 est.)
Public debt56.5% of GDP (2016 est.)
67.6% of GDP (2015 est.)
Fiscal yearcalendar year
Inflation rate (consumer prices)1.9% (2016 est.)
1.6% (2015 est.)
Central bank discount rate5.4% (31 January 2012)
5.75% (31 December 2010)
Commercial bank prime lending rate7.6% (31 December 2016 est.)
7.61% (31 December 2015 est.)
Stock of narrow money$3.327 billion (31 December 2016 est.)
$3.314 billion (31 December 2015 est.)
Stock of broad money$8.368 billion (31 December 2013 est.)
$8.12 billion (31 December 2013 est.)
Stock of domestic credit$18.93 billion (31 December 2016 est.)
$18.25 billion (31 December 2015 est.)
Market value of publicly traded shares$2.825 billion (31 December 2012 est.)
$2.021 billion (31 December 2011 est.)
$1.996 billion (31 December 2010 est.)
Current account balance$567 million (2016 est.)
$710 million (2015 est.)
Exports$4.6 billion (2016 est.)
$4.653 billion (2015 est.)
Exports - commoditiesfish and fish products 40%, aluminum, animal products, ferrosilicon, diatomite (2010 est.)
Exports - partnersNetherlands 26.1%, UK 11.6%, Spain 11.5%, Germany 7.4%, France 5.7%, US 5.7%, Norway 4.7% (2015)
Imports$5.024 billion (2016 est.)
$4.924 billion (2015 est.)
Imports - commoditiesmachinery and equipment, petroleum products, foodstuffs, textiles
Imports - partnersNorway 10.1%, Germany 8.6%, US 7.9%, China 7.9%, Denmark 7.1%, Netherlands 5.9%, Brazil 5.8%, UK 5% (2015)
Reserves of foreign exchange and gold$4.412 billion (31 December 2016 est.)
$5.041 billion (31 December 2015 est.)
Debt - external$27.3 billion (31 December 2016 est.)
$31.04 billion (31 December 2015 est.)
Stock of direct foreign investment - at home$17.19 billion (31 December 2016 est.)
$16.72 billion (31 December 2015 est.)
Stock of direct foreign investment - abroad$15.44 billion (31 December 2016 est.)
$15.59 billion (31 December 2015 est.)
Exchange ratesIcelandic kronur (ISK) per US dollar -
129.3 (2016 est.)
131.92 (2015 est.)
131.92 (2014 est.)
116.77 (2013 est.)
125.08 (2012 est.)