A new issue of Statistical Series presenting an economic forecast for the economy of Iceland is now available. The forecast covers the years 2022 to 2028.
Economic growth is projected to be 6.2% for this year and 1.8% next year. Private consumption growth has been strong so far this year and tourism has grown rapidly, but inflation has increased.
Private consumption is forecast to grow by 7.6% this year and 1.7% next year as the economy slows down. Private consumption growth was very strong in the first half of the year, increasing by 9.2% in the first quarter and 13.5% in the second quarter. Public consumption grew by 1.8% in the first half of the year. Public consumption growth is expected to be slower in the second half of the year and is projected to grow by 1.5%. Public consumption growth is expected to slow down further next year and grow by 0.9%.
The outlook for investment has improved and is projected to increase by 5.8% this year. Broad based growth is expected in business investment, which is projected to grow by 9,6% this year. Housing investment decreased by over 7% in the first half of the year. A turnaround is anticipated in residential investment in the second half of the year, which is projected to grow by 5.4%. A 12.9% increase in residential investment is expected next year. Public sector investment increased by 3.8% in the first half of the year but overall it is expected to decrease by 4.8% this year. A continued decline in public investment is planned next year, when it will decrease by 3.8%.
Exports of goods and services are forecast to increase by 19.1% this year, mainly due to a strong rebound in tourism. Next year, the tourism industry is assumed to reach its pre-Covid strength. Exports of goods will be affected by a projected decline in the export of marine products. Exports of goods and services are projected to increase by 3.7% in 2023.
The inflation outlook has worsened, but it is likely that inflation has already reached its peak this summer, and it is projected to reach 8.2% on average this year. Moderate slowdown in inflation is expected next year, as international inflation is expected to subside, commodity prices to decrease and the housing market to slow down. The consumer price index is projected to increase by 5.6% next year on average.
The labour market has improved significantly in the last two years. Unemployment has decreased at the same time as the working-age population has increased. Surveyed unemployment is projected to be 3.8% this year and 3.9% next year. Contracts in the general labour market are free, and most public contracts expire in March next year. There is considerable uncertainty about the results of collective agreements in the labour market.
The last economic forecast was published on the 27nd of June 2022. The next forecast is scheduled for March 2023.
Economic forecast— Statistical Series