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Iceland Country Risk Report Q4 2019

Iceland Country Risk Report Q4 2019

We continue to believe that the Icelandic economy will contract in 2019 as a whole despite a return to positive growth in Q219. Private consumption growth is likely to soften over the coming quarters as a sharp slowdown in business investment filters through to job creation and wage growth. This relatively tepid outlook for private consumption, coupled with ongoing issues for major airlines serving the country, have led us to decrease our real GDP growth forecast for 2020.

An upcoming visit by US Vice President Mike Pence to Iceland has highlighted the ideological and policy differences between the largest parties in Iceland's coalition government. A rapidly cooling economy is likely to further stoke tensions in the coalition given a likely divergence in how to tackle the slowdown. Against this backdrop, we reiterate our view that the coalition government is unlikely to last its full term to 2021.

Major Forecast Changes

We now see the economy growing by 2.0% in 2020, down from a previous estimate of 2.6%.

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
Iceland Economy: Moderate Recovery In 2020 After 2019 Contraction
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
Foreign And Economic Policy Likely To Cause Tensions In Iceland's Coalition Government
TABLE: POLITICAL OVERVIEW
Iceland Country Risk Q4 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 are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsLong-Term Political Outlook
Political Stability To Remain
Global Macro Outlook
Potential Policy Missteps Pose The Largest Risk To Global Growth
TABLE: GLOBAL MACROECONOMIC FORECASTS (2019-2024)
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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