Economic and Political Overview

flag Iceland Iceland: Economic and Political Overview

In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline

 

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 Indicators 2023 (E)2024 (E)2025 (E)2026 (E)2027 (E)
GDP (billions USD) 31.3332.9235.3838.0941.07
GDP (Constant Prices, Annual % Change) 5.00.62.42.22.3
GDP per Capita (USD) 83,48585,78790,11194,82199,926
General Government Balance (in % of GDP) -2.7-1.3-1.2-1.0-0.9
General Government Gross Debt (in % of GDP) 62.260.355.652.950.1
Inflation Rate (%) 8.76.03.32.52.5
Unemployment Rate (% of the Labour Force) 3.43.83.83.94.0
Current Account (billions USD) 0.360.060.040.110.21
Current Account (in % of GDP) 1.10.20.10.30.5

Source: IMF – World Economic Outlook Database , Latest available data

Note: (e) Estimated Data

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 20162017201820192020
Iceland Crown (ISK) - Average Annual Exchange Rate For 1 MUR 3.403.103.193.453.44

Source: World Bank - Latest available data.

 
 

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Indicator of Economic Freedom

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

 
 

Country Risk

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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.

 
Foreign Trade Indicators 20192020202120222023
Imports of Goods (million USD) 6,5675,6977,8179,5919,464
Exports of Goods (million USD) 5,2234,5825,9877,3896,609
Imports of Services (million USD) 3,5582,2012,9024,1524,523
Exports of Services (million USD) 5,6832,5053,5055,5846,662
Imports of Goods and Services (Annual % Change) -9.1-20.619.920.0-1.1
Exports of Goods and Services (Annual % Change) -5.3-30.714.822.16.3
Imports of Goods and Services (in % of GDP) 39.134.739.045.843.2
Exports of Goods and Services (in % of GDP) 43.733.337.345.743.6
Trade Balance (million USD) -838-591-1,047-1,463-2,093
Trade Balance (Including Service) (million USD) 1,125-287-444-31178
Foreign Trade (in % of GDP) 82.968.076.391.586.8

Source: WTO – World Trade Organisation ; World Bank , Latest Available Data

 

Main Partner Countries

Main Customers
(% of Exports)
2023
Netherlands 35.8%
United States 9.7%
United Kingdom 8.7%
France 6.4%
Norway 5.7%
See More Countries 33.6%
Main Suppliers
(% of Imports)
2023
Norway 11.6%
Germany 8.8%
China 8.7%
Netherlands 7.7%
United States 7.6%
See More Countries 55.7%

Source: Comtrade, Latest Available Data

 
 

Main Products

6.8 bn USD of products exported in 2023
Unwrought aluminiumUnwrought aluminium 30.7%
Fish fillets and other fish meat, whether or not...Fish fillets and other fish meat, whether or not minced, fresh, chilled or frozen 16.4%
Fish, fresh or chilled (excl. fish fillets and...Fish, fresh or chilled (excl. fish fillets and other fish meat of heading 0304) 6.3%
Frozen fish (excl. fish fillets and other fish...Frozen fish (excl. fish fillets and other fish meat of heading 0304) 6.3%
Fish, fit for human consumption, dried, salted or...Fish, fit for human consumption, dried, salted or in brine; smoked fish, fit for human consumption, whether or not cooked before or during the smoking process; flours, meals and pellets of fish, fit for human consumption 4.3%
See More Products 36.0%
9.5 bn USD of products imported in 2023
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals (excl. crude); preparations containing >= 70% by weight of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, n.e.s.; waste oils containing mainly petroleum or bituminous minerals 12.3%
Motor cars and other motor vehicles principally...Motor cars and other motor vehicles principally designed for the transport of persons, incl. station wagons and racing cars (excl. motor vehicles of heading 8702) 8.0%
Artificial corundum, whether or not chemically...Artificial corundum, whether or not chemically defined; aluminium oxide; aluminium hydroxide 6.5%
Carbon electrodes, carbon brushes, lamp carbons,...Carbon electrodes, carbon brushes, lamp carbons, battery carbons and other articles of graphite or other carbon, with or without metal, of a kind used for electrical purposes 5.8%
Automatic data-processing machines and units...Automatic data-processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, n.e.s. 3.1%
See More Products 64.2%

Source: Comtrade, Latest Available Data

 
 

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Main Services

Source: United Nations Statistics Division, Latest Available Data

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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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Political Outline

Current Political Leaders
President: Halla TOMASDOTTIR (since 1 August 2024)
Prime Minister: Kristrun FROSTADOTTIR (since 21 December 2024)
Next Election Dates
Presidential: June 2028
Parliament: November 2028
Main Political Parties
The political parties in the ruling coalition are:
- Social Democratic Alliance (SDA): centre-left, social-democratic party
- Liberal Reform Party (Viðreisn): green-liberalism, pro-European
- People's Party: left-wing, socialist, populist

The main opposition parties are:
- Independence Party (IP): centre-right, conservative, opposes joining the European Union
- Centre Party (CP): populist, euro-scepticism
- Progressive Party (PP): centre-right, agrarian, liberal.
Type of State
Republic state based on parliamentary democracy.
Executive Power
The President is the head of the state and is elected by popular vote for a four-year term. The President’s role is largely ceremonial. Following legislative elections, the leader of the majority party or the leader of the majority coalition is usually appointed as the Prime Minister by the President for a four-year term.

The Prime Minister is the head of the government and holds the executive powers which include implementation of the law in the country and running the day-to-day affairs. The Prime Minister also appoints the Cabinet.

Legislative Power
The legislature in Iceland is unicameral. The Parliament (called "Althingi") consists of 63 seats, its members are elected by popular vote to serve four-year terms. The executive branch of government is directly or indirectly dependent on the support of the parliament, often expressed through a vote of confidence. The Prime Minister cannot dissolve the parliament directly but can recommend the same to the President. Legislative power is vested in both the government and the parliament. The people of Iceland enjoy considerable political rights.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
16/180
Evolution:
15/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7
Civil Liberties:
57/60

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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Latest Update: May 2025