Economic crisis: Iceland 2008
Current state of the economy
In numerical data, the economy of Iceland is marked by the following:
A gross domestic product of $12.15 billion, making Iceland the 145th largest economy of the globe (out of 227 countries)
After positive GDP growth rates in 2007 and 2008, 2009 saw a contraction of the national output by 6.6 per cent
The income per capita is of $39,600, significantly higher than the $10,500 global average. Iceland is in fact the 20th largest country in terms of GDP per capita
Similar to the global trend, the large majority of the national output is generated by services, followed by industry and agriculture. Specifically, the services account for 70.8 per cent of the GDP; industry accounts for 24 per cent and agriculture contributes with 5.2 per cent to the gross domestic product
The Icelandic labor force is composed of 180,900 individuals, most of whom are employed in services (73 per cent), followed by industry (22.2 per cent) and agriculture (4.8 per cent)
The unemployment rate is of 8.2 per cent, having registered a significant increase since its 4.8 per cent value in 2008
The federal budget is composed of expenditures in the amount of $6.729 billion and revenues of $4.844 billion, revealing as such a $1.885 billion federal deficit
The public debt accounts for 107.6 per cent of the gross domestic product — the ninth largest public debt in the world
The inflation rate of 12 per cent is one of the lowest at a global scale
The country’s economic growth and stability remain sensitive to fishery activities, which constitute more than 40 per cent of the export income, 12 per cent of the gross domestic product and employ 7 per cent of the labor force (Central Intelligence Agency, 2010).
Today, the federal actions regarding the Icelandic economy remain focused on stabilizing the climate and increasing the trust in the state by both citizens as well as foreigners. A specific question which is currently being addressed refers to the adherence of Iceland to the European Union. In the immediate aftermath of the crisis, an idea was issued according to which the insular country would intensify its efforts of adhering to the European Union. This measure would also imply the adoption of the euro as the national currency and the hope was that of a better protection in the face of future economic crises.
Despite the higher level of protection, the adherence to the EU would have also implied higher levels of involvement from the European Community. One direct consequence would have been the loss of control over the revenues from fishery activities. Additionally, it was believed that the European Union would impose union wide measures of dealing with the crisis and that the necessity of complying with the respective measures might not materialize in the most positive result for Iceland. In this light of thoughts, the process by which the country would adhere to the EU and adopt the euro as its national currency was put on hold. “The collapse of the financial system initially led to a major shift in opinion in favor of joining the EU and adopting the euro, although support has dropped substantially because of concern about losing control of their fishing resources and in reaction to measures taken by EU partners following the financial crisis” (Central Intelligence Agency, 2010).
Iceland is currently using the money it received as loan from the International Monetary Fund and six other countries — Poland, Norway, Denmark, Russia, Sweden and Finland — to construct and implement an economic recovery program. This program is focused onto the following directions:
Generating stability with exchange rates
Rebuilding confidence in the monetary policy
Better managing and restricting public debt
Reforming and restructuring the banking sector to insure more transparency and the implementation of internationally recognized policies (The Icelandic Government Information Center, 2008).
4. for the economy
The 2008 has severely impacted the Icelandic economy. In light of the dramatic effects as well as the efforts put into the reconstruction and reconsolidation of the Islanding economy, major growths are not expected. In other words, it is generally assumed that the country will regain its stability through small and gradual victories, which will, for the time being, only manage to stabilize the economy. Growth rates are expected to remain low and for 2010 for instance, the growth rate of the gross domestic product is expected to be close to zero (Central Intelligence Agency, 2010).
In terms of actually achieved stability, this is expected to be accomplished by 2013, and it would constitute the results of years of austerity strategies. Throughout the austerity program, the spending of the government would be decreased and the federal budget would be better balanced among revenues and expenditures (The Icelandic Government Information Center, 2008).
Other aspects which could be forecasted include:
2010 is expected to close on a negative growth in GDP of 3.042 per cent; 2011 could however witness an increase in the gross domestic product. Economy Watch for instance estimates a 2.3 per cent increase in the country’s national output. By 2012, the GDP growth rate could be of 4.5 per cent (Lansbanki, 2008)
Inflation in 2011 is expected to reach a value of 3.815 per cent, a significant decrease when compared to the current 12 per cent
The unemployment rate is expected to remain rather constant. Its 2011 value is estimated at 8.47 per cent of the labor force (Economy Watch, 2009)
At a national level, it is expected that the focus on private pension funds increases, meaning as such that their percentage in the GDP will significantly increase
The stability of the public finances will increase and the trade balances are expected to decrease in deficit
Despite the evolutions however, the Icelandic krona (ISK) is expected to remain weak within the international context (Landsbanki, 2008).
Similar to many other global regions, it is expected that the Icelandic economy gradually revive and that the political approach to the economy suffers modifications. While the past few decades have witnesses gradual deregulations and a decreasing political involvement within markets and economies, the following decades are expected to witness an opposing situation. In other words, the elimination of governmental control over the market has materialized in a globalization of the financial crush and efforts would be made to ensure that the situation does not repeat itself. And in this order of ideas, the governments — including the Icelandic federal authority — are expected to develop and implement more prudential policies, which focus primarily on stability, and only secondly on profit gains.
References:
2008, Economic programme in cooperation with IMF, The Icelandic Government Information Center, http://www.iceland.org/info/iceland-imf-program / last accessed on August 2, 2010
2008, Economic outlook 2008-2012, Landsbanki, http://www.landsbanki.is/Uploads/Maillist/Docs/economicoutlook2008-2012.pdf last accessed on August 2, 2010
2008, Glitnir releases economic forecast for Iceland, IceNews, http://www.icenews.is/index.php/2008/06/02/glitnir-releases-economic-forecast-for-iceland / last accessed on August 2, 2010
2010, Iceland economic statistics and indicators, Economy Watch, http://www.economywatch.com/economic-statistics/country/Iceland / last accessed on August 2, 2010
2010, Iceland’s government sees economy recovering, but IMF aid is key, Reuters, http://www.reuters.com/article/idUSTRE63G1P520100417 last accessed on August 2, 2010
In depth, Financial Times, http://www.ft.com/iceland last accessed on August 2, 2010
