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Iceland Country Risk Report Q3 2019

Iceland Country Risk Report Q3 2019

Although we are now expecting the Icelandic economy to contract in 2019 for the first time since the global financial crisis, we believe the downturn will be far less severe than the recession of 2009 and 2010. The main factors that will cause the economy to shrink are transient headwinds that will subside in 2020.

Furthermore, growth will remain supported by an increase in wages following an agreement between employers and trade unions, and by accommodative monetary policy.

We retain our view that the Icelandic grand coalition government is unlikely to last its full term despite successfully negotiating a collective wage agreement and approving a controversial abortion bill. There are several key challenges that remain including a potential re-emergence of the wage dispute and a vote on an EU energy package, which could lead to tensions between members of the coalition. These tensions could well be exacerbated if the two largest parties harden their respective positions amid signs of falling support according to recent opinion polls.

Major Forecast Changes

We now see the economy contracting by 0.2% in 2019, down from a previous estimate of positive growth of 1.9%.

Key Risks

The biggest risk to the Icelandic economy stems from the external environment amid global trade tensions and uncertainty over Brexit. There are also domestic risks stemming from ongoing wage negotiations and from the fragility of the grand coalition government.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Real GDP Contraction Will Be Short And Shallow
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
10-Year Forecast
The Icelandic Economy To 2028
Settling Into More Moderate Long-Term Growth Trend
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Further Obstacles Ahead For Icelandic Coalition Following Wage Deal
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Political Stability To Remain
Iceland Country Risk Q3 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report is solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsGlobal Macro Outlook
Resurfacing Of Trade Tensions Dampens Outlook
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: ICELAND – MACROECONOMIC DATA AND FORECASTS

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