ICELANDIC ECONOMIC SITUATION OVERVIEW March 2015
ICELAND AT A GLANCE Republic, written constitution, parliamentary form of government
State and Government
Coalition: Independence Party and Progressive Party, formed in May 2013 Parliament: Althingi established in 930, currently 63 members
Capital
Reykjavik
Population
329,040 as of 4th quarter 2014 (Source: Statistics Iceland) Icelandic Krona (ISK) February ‘15 monthly average (source CBI)
Currency
USD = ISK 132
Location
Northern Europe Flying time: 5.5 and 3 hours from New York and London respectively
Area
103,000 km2 / 39,756 sq. miles
EUR = ISK 150 USD 45,137 in 2013 (Source: Statistics Iceland)
GDP per capita Long term credit ratings
Moody’s: Baa3 / Stable S&P: BBB- / Positive Fitch: BBB / Positive
Political Milestones Member of OECD 1948
Full independence in 1944 1944
2
1945
1946
1947
Member of UN 1946 *Membership application put on hold in June 2013
1948
Started EU membership application*
Joined EFTA in 1970
1949
Member of NATO 1949
1970
1994
Access to EEA in 1994
2009
2014
THE ICELANDIC ECONOMY Export of goods and services by type 2013 Other Service Sectors 10%
Facts
Iceland is emerging steadily from a recession caused by the 2008 collapse of its economy and banking system Inflation (2014): 2% GDP growth (2014): 1,9% Unemployment (2014): 3,6% Life expectancy (2012): Men: 81,6, women: 84,3
Agricultural Products 1%
GDP per capita, USD PPP
9%
330,000
8%
320,000
7%
310,000
6%
300,000
5%
290,000
4%
280,000
3%
270,000
2%
260,000
1%
250,000
0%
240,000 2000
2002
2004 2006 2008
Total inhabitants 3
2010
Aluminium and Ferrosilicon 23%
Other Manufactured Goods and Products 9%
Icelandic population
1998
Marine Products 27%
Tourism and Transportation 32%
2012
2014
% of foreign citizens
50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2000
2002
2004
2006
Iceland
2008 EU 28
2010
2012
2014
WITH LOW UNEMPLOYMENT AND STRONG EXPORT SECTOR... %
%
Inflation
9 8 7 6 5 4 3 2 1 0
14 12 10 8 6 4 2 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Statistics Iceland
Index, 2008=100
Statistics Iceland - Forecast
Directorate of Labour
%
Exports
140 120 100 80 60 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Goods and services export Service exports Imports
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
IMF - Forecast
160
4
Unemployment
Goods exports GDP
Statistics Iceland - Forecast
IMF - Forecast
Real wages
8 6 4 2 0 -2 -4 -6 -8 -10 2007
2008
2009
2010
2011 Real wages
2012
2013
2014
2015
ICELAND IS RECOVERING FASTER THAN OTHERS... Real GDP growth - volume EU memebers 12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-8
-8
-10
-10 2007 UK
5
Other IMF program countries
2008 France
2009
2010
2011
Netherlands
2012 Germany
2013
2014 Iceland
2007 Ireland
2008
2009 Greece
2010
2011
Cyprus
2012 Portugal
2013
2014 Iceland
STRONG GROWTH CLOSES THE OUTPUT GAP...
%
5
20
0
4% 3% 2% 1% 0%
-10
-40
-1%
-15
-60
-2%
Private consumption
Government consumption
GDP
Gross fixed capital formation
-3% -4% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2014
2013
2012
2010
2009
2008
2007
2006
2005
2004
2003
2011
GDP
Output gap
-20
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
6
2002
Gross domestic final expenditure
0
-5
2001
80
40
Proj
10
100
%
Real annual growth
15
120
2000
140
1999
160
1998
GDP and final expenditure
1998=100
GDP grew by 1,9% in 2014, year on year (3.6% growth in 2013) The growth is mainly driven by a large increase in the gross domestic final expenditure (5.3%) Growth prospects are good with average around 3% Private consumption has been growing steadily since 2011. Last year it grew by 3.7% Investment, which is quite volatile, grew by 13.7% in 2014
AND FALL IN EXCHANGE RATE HAS TRIGGERED CURRENT ACCOUNT TURNAROUND Real exchange rate
Underlying Current Account Balance
120
10
100
5
80
0
60
-5
40
-10
20
-15
0
-20 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Labour cost
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Consumer prices
CentralBankofIceland
Trade balance
CentralBankofIceland-Forecast
Rising share of tourism
80
1,400
30%
60
1,200
40
25%
1,000
20
800
0
20% 15%
600
-20
10%
400
-40
5%
200
-60
0%
0
-80 2007
2008
2009 Imports
7
IMF-Forecast
2010
2011 Exports
2012
2013
2014
Trade Balance
2015
2009 Tourism
2010
2011
TotalExportofgoodsandservices
2012
2013 ShareofTourism(R-axis)
LABOUR MARKET HAS RECOVERED %
Proj
8 7 6 5 4 3 2 1 0 2000
2002
Unemployment by education 12
2006
2008
2010
2012
2014
2016
2018
Net immigration and population growth 10,000 8,000
10
6,000 4,000
8
2,000
6
0 -2,000
4
-4,000
2
ISCED 1, 2
ISCED 3, 4
ISCED 5, 6
Icelandic citizens
Foreign citizens2
Total net immigration
Net population growth
2014
2013
2011
2012
2010
2009
2008
2007
2005
2006
2004
2003
2002
2001
1996
-6,000
0
8
2004
1999
9
2000
Unemployment (registered)
1998
Registered unemployment was 3.6% in 2014. It is projected to be around 3% until 2019 Unemployment was around 8% in 2009 and 2010 Unemployment has decreased fastest among the least educated (ISCED 1,2) but increased recently for those with tertiary education (ISCED 5,6) Net immigration fell in 2009 and 2010 but has since then picked up
1997
AND PRODUCTIVITY IS STABLE Labor productivity
Productivity, GDP per hour worked
140
80 70 60 50 40 30 20 10 0
120 100 80 60 40 20 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0
General government debt and deficit, %GDP 200
Greece
180 160 140
Ireland
120 Iceland100
France
80
Germany
60 40 20
Maastricht
-14 9
-13
-12
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
0 -1
0
1
2
BUT CHALLENGES REMAIN Total Balance (excl. Irregular items)
The overriding objective of the fiscal plan has 36% 34% been to achieve a substantial surplus in the 32% primary balance to counteract the deficit in the 30% interest balance and produce a surplus in the 28% overall balance of the Treasury 26% Interest expenditure is a significant burden for 24% 22% the Treasury One of the main challenges is to reduce total 20% debt in the coming years
ISK billion
% of GDP
10% 8% 6% 4% 2% 0% -2% -4% -6% -8% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total balance (R. axis)
Revenue
ISK billion
Expenditure
% of GDP
120
6.0
2,000
100
100
5.0
1,500
80
80
4.0
1,000
60
3.0
500
40
2.0
0
20
1.0
0
0.0
60 40 20
-500 -1,000
0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Interest expenditure, nominal (l-axis) Interest exp. % of GDP (r-axis) 10
Gross debt (l-axis)
Net fin. pos. (l-axis)
Gross debt (r-axis)
WITH HIGH DEBT LEVELS % of GDP
% of GDP
Corporate Debt Outstanding
140
350
120
300
100
250
80
200
60
150
40
100
20
50
0
0 2004
2006
ISK million
2008
2010
2012
Indexed
2014Q2
Total External Debt
16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000
ISK billion
Exchangerate-linked
Non-Indexed
Overdraft
Assetfinancingagreements
FX Borrowing by Households
30%
300
25%
250
20%
200
15%
150
10%
100
5%
50
0%
0 1.2006 6.2006 11.2006 4.2007 9.2007 2.2008 7.2008 12.2008 5.2009 10.2009 3.2010 8.2010 1.2011 6.2011 11.2011 4.2012 9.2012 2.2013 7.2013 12.2013 5.2014 10.2014
4,000,000 2,000,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 11
Total Household Debt
Total household foreign-denominated borrowing from deposit money banks Foreign denominated borrowing as a % of household's borrowing (L-axis)
AND CAPITAL CONTROLS NEED TO BE LIFTED Estimated domestic/foreign breakdown of assets and claims of DMBs in winding-up proceedings
Conditioned based removal of controls: macroeconomic developments potential balance of payments and foreign exchange effects financial stability
100 90 80 70 60 50 40 30 20 10 0
Foreign Domestic in FX Domestic in ISK Domestic
Claims
Assets
Off shore ISK 700
Authorities have expressed preference for: simplicity over complexity time efficiency for liberalization for the real economy minimizing legal risks finality of the crisis related legacies
600 500 400 300 200 100 0 HFF bonds
12
Treasury notes and bills
Deposits
* Foreign-denominated loans of domestic parties, excl. Landsbankinn, to the failed banks
BUT ICELAND´S BANKS ARE ON A RIGHT TRACK Commercial Banks´Capital Adequacy Ratios 35% 30% 25% 20% 15% 10% 5% 0% Dec-2011
Jun-2012
Dec-2012
Landsbankinn
Commercial Banks´s Funding
Jun-2013
Islandsbanki
Jun-2014
MP Bank
Loans and assets of the banking system (ISK millions)
100%
5,000,000
80%
4,000,000
60%
3,000,000
40%
2,000,000
20%
1,000,000 0
0% Dec-2009
Deposits
13
Arion Bank
Dec-2013
Dec-2011
Other Borrowings
Dec-2012
Dec-2013
Subordinated Loans
Equity
2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 Assets of the banking system Loans of deposit instituions (homes)
Loans of deposit instituions
AND KEY SECTORS REMAIN STRONG Catch Value as a % of GDP 10 8 6 4 2 0 2005
2007
2009
2011
1.2 1 0.8
150
0.6
100
0.4
50
0.2
0
0 2005
2007
2009
ISK Price Index (L) 14
2011
1,200
2013
XDR Price index (r)
Tourists to Iceland
1,000 800 600 400 200 0 2005 2007
2009
2011
20,000 15,000 10,000 5,000 0
2007
2009
Tourists via airports
2013
Electricity Capacity and Generation 1.4
200
18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2005
1.6
250
Thousand
2013
Price indices of Marine Products 300
GWh Energy Transmitted by Landsnet
3,000
1,500 1,000
2013
Tourists via cruise ships
Foreign Passengers through Keflavik Airport 2014 Canada 4%
2,500 2,000
2011
Sweden 4% Denmark 5%
Netherl. 3% Other 29%
Norway 6% France 6%
500 0
Germany 9%
Annual generation of energy (GWh Left axis) Installed capacity at end of period (MW Right Axis)2
USA 16%
UK 19%
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