Iceland: Economic and Political Overview

Economic Indicators

In the last decade, Iceland's economy grew at a relatively fast pace, driven by unprecedented growth in tourism, strong consumption, and falling unemployment. Following a strong post-pandemic recovery, Iceland's economy significantly slowed down in 2024: data from the national statistical office show that, in 2024, Iceland's GDP grew by 0.5% in volume (from 5% one year earlier), reaching a nominal value of ISK 4,616 billion, as the combined household and government final consumption and gross fixed capital formation rose by 2.3% in 2024, matching the growth rate from the previous year. A larger-than-expected negative impact from net exports emerged, driven by slow tourism in 1H24, reduced marine production, and a one-off spike in investment goods imports. For 2025, the IMF projects growth at 2.4% of GDP, followed by 2.2% in 2026.

Iceland's economic outlook is very volatile, as the country is heavily dependent on the tourism sector (which accounts for 40% of export income and around 8% of GDP), making it vulnerable to external shocks. Moreover, domestic shocks, such as a bad fishing season or a decline in viable fishing stocks, could reduce exports of marine products (which account for around 40% of merchandise exports). In 2024, the general government’s financial balance was estimated at a deficit of ISK 160.8 billion, or 3.5% of GDP, compared to a deficit of ISK 99.5 billion in 2023 (2.3% of GDP – official governmental figures). Preliminary data show a 5.8% increase in government revenue and an 8.6% rise in government expenditure from the previous year. The current Fiscal Plan (2025-2029) aims for a balanced budget at the general government level by 2029. At the end of 2024, general government net financial assets were estimated at -ISK 1,731.9 billion (37.5% of GDP), compared to -ISK 1,552.6 billion (35.8% of GDP) in 2023. Financial assets totalled ISK 2,613.5 billion (56.6% of GDP), while total liabilities rose by 6.5% to ISK 4,345.4 billion (94.1% of GDP). Central government's gross debt was estimated at ISK 3,748.6 billion (81.2% of GDP), with local governments’ gross debt at ISK 606.3 billion (13.1% of GDP). Debt is expected to decrease over the forecast period, supported by modest primary fiscal surpluses and the use of accumulated cash deposits, which were 7.4% of GDP at the end of 2024. The planned sale of the state's remaining 42.5% stake in Íslandsbanki could further reduce the debt ratio. According to Statistics Iceland, the average consumer price inflation in 2024 was 627.5 points, a 5.9% increase from 2023. This follows an 8.8% rise in 2023 and 8.3% in 2022. The rate is expected to gradually decrease towards the Central Bank’s target of 2.5%, reaching it by 2026, although higher imported inflation from an intensified global trade war could present challenges for both fiscal and monetary policy.

The labour market has improved significantly in the last years, and unemployment decreased at the same time as the working-age population increased (also thanks to the inflow of Ukrainian refugees). In Q4/2024, the unemployment rate was estimated at 2.9% according to the national statistical institute and should remain stable over the forecast horizon. Overall, Iceland has a high standard of living, one of the highest GDP per capita in Europe (estimated at USD 78,808 in 2024 by the IMF), and one of the lowest poverty rates. Nevertheless, Iceland is among the countries with the most people living abroad and will have to import thousands of foreign workers to meet the needs of businesses.

Main Sectors of Industry

Iceland has a labour force of more than 241,000 people out of a population of 393,300. The Icelandic labour market is characterized by a high participation rate and a high proportion of trade union membership, at above 90%. Since the financial crisis in 2008, one of the government’s priorities has been to diversify the economy, which in the last decade was mainly oriented towards the manufacturing and service industries. Nowadays, the agricultural sector contributes around 3.8% of Iceland's GDP and employs 3.7% of the workforce. Large areas of sheep pasture are among the most important agricultural resources in the country, while the main agricultural products are potatoes, carrots, green vegetables, tomatoes, cucumbers, mutton, chicken, pork, beef, and dairy products. The Icelandic economy relies partly on its renewable natural resources and related industries: deep-sea fishing, hydraulic and geothermal power, and pastures. Fishing is one of the pillars of Iceland’s economy and covers around 40% of exports. According to data by Statistics Iceland, in 2024, cereal production stood at 5,109 tonnes (-33.4% y-o-y). Moreover, Iceland’s fishing industry saw a significant decline in 2024, with total catches falling to 995,000 tonnes—down 28% from 2023. The drop was mainly due to the lack of capelin catches throughout the year.

The industrial sector represents almost 21.1% of GDP and employs 18.3% of the workforce. The hydroelectric potential stimulates the production of aluminium and is the primary resource for export and concentrates around 70% of the electricity produced on the island. Geothermal provides the remaining 30% so that renewable energies cover all of the country’s energy needs. The food processing sector is also prominent. The manufacturing sector alone accounts for 9.5% of GDP, whereas the construction industry accounted for 8.2% of GDP in 2023 (Statistics Iceland, latest data available).

Services account for 64.6% of GDP and employ 78% of the workforce. For the past several years, Iceland's economy has grown thanks to the services sector, particularly within the fields of tourism, software production, and biotechnology. In fact, Iceland has become the rear base of several companies specializing in computers and software. There are also many call centres in the country. Overall, the direct contribution of tourism to the national GDP was estimated at 8.1% in 2024 by Statistics Iceland (it was 8.4% before the pandemic). Real estate activities account for 10.6% of GDP, wholesale for 8.9%, and human health and social work activities for 9.2% (Statistics Iceland). The commercial banking sector consists of four universal banks and five small savings banks. Three of the four major banks are designated as systemically important and fall under the oversight of the Financial Stability Council. Collectively, they account for around 96% of the loan market share in the banking sector. The total assets of the banking sector amounted to almost ISK 5,500 billion in 2023, equivalent to around 126% of GDP (European Banking Federation - latest data available).

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	3.7	18.3	78.0
Value Added (in % of GDP)	3.8	21.1	64.6
Value Added (Annual % Change)	-1.8	3.9	5.9

Source: World Bank - Latest available data.

 

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Monetary Indicators	2016	2017	2018	2019	2020
Iceland Crown (ISK) - Average Annual Exchange Rate For 1 MUR	3.40	3.10	3.19	3.45	3.44

Source: World Bank - Latest available data.

 

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:

77,4/100

World Rank:

11

Regional Rank:

6

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

 

Foreign Trade in Figures

Iceland has always been open to international trade, with trade representing 94% of its GDP (World Bank). Most restrictions on foreign exchange transactions and cross-border movement of domestic and foreign currency for both businesses and households were lifted to stimulate foreign trade. However, barriers to trade and market entry still exist, including the adoption of EU product standards and regulations, high tariffs on most agricultural products from outside the EU, restrictions on the import of certain products like raw meat due to phytosanitary regulations, and difficulty in obtaining financing for joint ventures. Traditional sectors like fishing drive the dynamism of the country's exports, with more than 40% of national exports consisting of fishing products. In 2023, aluminium products made up 34.2% of total exports, the largest share among manufactured goods. Marine products accounted for 37.6%, down 2% from the previous year, with fresh fish and frozen fillets contributing 9.4% and 8.9%, respectively. On the other hand, raw and consumable goods accounted for the largest share of import value at 26%, followed by investment goods at 23.8%, transport equipment (14.7%), and fuel and lubricants (13.2%), while food and beverages accounted for 9% of total imports (data Statistics Iceland).

According to data from Statistics Iceland, in 2023, the country’s main export destinations were the Netherlands (35.9% of total exports), the U.S. (9.7%), the United Kingdom (8.6%), France (6.4%), and Norway (5.8%). Imports primarily originated from Norway (11.6%), Germany (8.8%), China (8.7%), the Netherlands (7.7%), the U.S. (7.5%), and Denmark (6%). 78% of all exports went to EEA countries, against 62% for imports.

In 2023, Iceland exported USD 6.6 billion worth of merchandise (down by 30.1% year-on-year) and imported USD 9.4 billion (marking a 1.3% increase). However, Iceland is a net service exporter, with USD 6.6 billion in exports compared to USD 4.5 billion in imports in 2023 (+19.3% and +8.9% y-o-y, respectively - data from the WTO). According to the latest figures from Statistics Iceland for the year 2024, goods exports reached ISK 958.4 billion, up by 2.1% compared to the previous year; whereas imports totalled ISK 1.356 billion (+3.8%). During the same period, the trade in services recorded a surplus of ISK 261.7 billion, down from ISK 295 billion in 2023.

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of Foreign Affairs

Statistical Office

Statistics Iceland

Central Bank

Central Bank of Iceland

Stock Exchange

Nordic Exchange

Search Engines

Iceland on the web
Web Collection

Economic Portals

Portal to the world: Iceland page

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