Iceland’s economy likely expanded strongly in 2015

Iceland's economy is expected to have expanded strongly in 2015 as a whole even if it has stagnated in Q4. Also, the outlook continues to be positive. In Q3, the Icelandic economy grew 0.7% q/q that dragged the annual rate down to 2.6%. There are mixed evidence for Q4 growth. In Q4, total hours worked grew 3.8% y/y, while payment card turnover data point to continued growth in consumer spending, which is supported by huge wage settlements in summer and a looser fiscal stance.

These have helped consumer confidence that is good for GDP growth. However, central bank balance of payments data indicate that the goods and services trade surplus narrowed again in the fourth quarter.

"On balance, we think the
 Icelandic economy might have stagnated in Q4. But this would still push up the annual rate to about 4.5%", says Capital Economics.

Iceland's economy is expected to expand at healthy pace in the future; however, at a slightly slower rate than in 2015 as the earlier breakneck investment pace will not be sustained. Also, arrangements for lifting capital control are going smoothly.

Looking ahead, we think that Iceland's economy will continue to grow at a healthy pace, albeit slightly more slowly than in 2015 as the previous breakneck pace of investment won't be sustained. It is also encouraging that preparations for the lifting of capital controls, perhaps later this year, are proceeding smoothly.