A new issue of Statistical Series, presenting an economic forecast for 2022–2027, is now available.
The economy is expected to grow by 5.1% this year and 2.9% in 2023. GDP grew by 8.6% in the first quarter. Domestic demand has been strong so far this year, but uncertainty surrounding the domestic and foreign inflation outlook has increased.
Private consumption growth was robust the first quarter. Private consumption is expected to grow by 4.3% this year with rising employment, but rising inflation will slow its growth in coming years. Private consumption is projected to grow by 2.6% next year and 2.4% in 2024. Public consumption is expected to grow by 1.3% this year and 1.4% on average in 2023 and 2024. Investment growth is forceast to increase by 4.6% this year, driven by growth in business investment and residential investment, while public investment will contract slightly.
Investment growth is expected to be 0.9% next year, which can be attributed to a contraction in investment in ships and aircrafts. The export outlook has improved as the number of tourists increased faster in the first half of the year than expected. Exports are expected to increase by 17.6% this year and 6.3% next year. The number of Icelanders traveling abroad has increased, and imports of goods have been strong, e.g. due to imports of aircrafts. Imports are expected to increase by 14.3% this year and 4.1% in 2023.
The inflation outlook has deteriorated considerably due to rising inflation abroad, higher increases in house prices and strong demand in the economy. The consumer price index is expected to rise by 7.5% on average this year and inflation remain higher over the forecast horizon than previously estimated. Next year, inflation is expected to increase by 4.9% between years and by 3.3% in 2024, after which inflation is expected to approach the Central Bank's 2.5% inflation target. The labour market has tightened with greater economic activity. Demand for labour is high and registered unemployment has decreased steadily since the beginning of the year. Unemployment is expected to average 3.8% this year, 3.7% next year and 3.8% in 2024.
The last economic forecast was published on the 29nd of March 2022. The next forecast is scheduled for October 2022. The forecast is based on data available in end of May.