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 | COVID-19 Country Response

 

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

After having suffered from the international crisis, Iceland's economy recovered, also thanks to a USD 2 billion loan granted from the IMF to stabilise the exchange rate of the Icelandic krona and to restore confidence, driven by unprecedented growth in tourism, strong consumption and falling unemployment. In 2021, an early opening of the economy contributed to a rebound in GDP (estimated at +3.7% by the IMF) after the recession experienced following the outbreak of the Covid-19 pandemic one year earlier). Growing wages contributed to an increase in private consumption, whereas tourism recovered only partially. The economy is projected to grow by 4.1% in 2022 and 3.7% in 2023, driven by rebounding foreign tourism and robust goods exports. Business investment is expected to ease as pent-up projects are being terminated, while household consumption should remain solid (IMF).

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 10% of GDP), making it vulnerable to external shocks. This is why, following the Covid-19 pandemic, the Icelandic economy came to a standstill. The effects of the crisis are clearly visible. Public debt has risen to 75.8% of GDP in 2021 (from a pre-pandemic level of 66.1%) but is expected to decrease marginally in 2022 (75.4%) and 2023 (73.9%). The public deficit stood at an estimated 3.5% of GDP in 2021 and is expected to peak at -6.2% this year, before easing in 2023 (-3.9% - IMF). Between May and November 2021 the Central Bank tightened its monetary policy, raising the interest rate in four steps, from 0.75% to 2%. Despite such measures, inflation spiked to 4.3% in 2021. While the inflationary pressure should diminish somewhat in 2022, the level of inflation will remain elevated and noticeable (at around 3.5%), before returning to the Central Bank’s inflation target of 2.5% in 2023. Iceland is a member of the European Free Trade Association (EFTA) and is also part of the European Economic Area (EEA). To benefit from European aid and the 'umbrella' constituted by the euro, Iceland had applied to join the European Union. Nevertheless, it definitively withdrew its candidacy in March 2015.

Iceland's unemployment rate increased exponentially to 7% in 2021 despite hiring subsidies, from 3.9% in 2019, due to the negative economic impact of the COVID-19 pandemic. The IMF expects the rate to decrease to 5% this year and 4% in 2023, although the rate will remain very dependent on the development of tourism (which represents almost one-fourth of total employment). Overall, Iceland has a high standard of living, one of the highest GDP per capita in Europe (estimated at USD 58,151 in 2021 by the IMF), and one of the lowest poverty rates in the world (4.9% as of 2021 – data Iceland Monitor). Nevertheless, Iceland is among the countries with most people living abroad and will have to import thousands of foreign workers to meet the needs of businesses.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 24.8621.72e25.4827.1728.17
GDP (Constant Prices, Annual % Change) 2.4-6.53.74.13.7
GDP per Capita (USD) 69,631e59,643e68,84472,31873,882
General Government Balance (in % of GDP) -3.3e-2.9-3.5-6.1-3.9
General Government Gross Debt (in % of GDP) 66.177.1e75.875.473.9
Inflation Rate (%) 3.0e2.94.56.95.5
Unemployment Rate (% of the Labour Force) 3.9e6.47.05.04.0
Current Account (billions USD) 1.45e0.200.260.340.44
Current Account (in % of GDP) 5.8e0.91.01.21.6

Source: IMF – World Economic Outlook Database , October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Iceland has a labour force of more than 213,000 people out of a population of 366,000. The Icelandic labour market is characterised by a high participation rate and a high proportion of trade union membership, at around 92.2% (OECD). 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. The agricultural sector contributes around 4.3% of Iceland's GDP and employs 4% of the workforce. Large areas of sheep pasture are among the most important agricultural resources in the country. 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.

The industrial sector represents almost 19.7% of GDP and employs 17.5% of the workforce. The hydroelectric potential stimulates the production of aluminium, which 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 important. The manufacturing sector alone accounts for 8.7% of GDP (World Bank).

Services account for 66.2% of GDP and employ 68.5% 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 specialising in computers and software. There are also many call centres in the country. Total assets of the banking sector amount to ISK 4,212 billion, the equivalent to around 140% of GDP in 2020 (latest data available). Due to the Covid-19 pandemic and restrictions on international travel, the tourism sector has suffered a major shock: in 2021, the number of foreign tourists stood at 700,000, compared to a pre-crisis level of around 2 million.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 4.0 17.5 78.5
Value Added (in % of GDP) 4.3 19.7 66.2
Value Added (Annual % Change) -0.5 -6.2 -6.8

Source: World Bank - Latest available data.

 

Find more information about your business sector on our service Market Reports.

 
 
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.

 
 

Find out all the exchange rates daily on our service Currency Converter.

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

See the country risk analysis provided by Coface.

 

Return to top

Foreign Trade in Figures

Iceland has always been open to international trade, which represents 69.2% of GDP (World Bank). Most of the restrictions on foreign exchange transactions and the cross-border movement of domestic and foreign currency for both businesses and households were lifted in order to stimulate foreign trade. The main barriers to trade and market entries are the increasing adoption of EU product standards and regulations, high tariffs on most agricultural products from outside the EU, restrictions on import of some products, such as raw meat; due to phytosanitary regulations and difficulty in obtaining financing for joint ventures. Traditional sectors such as fishing stimulate the dynamism of the country's exports. More than 40% of the national exports are fishing products. Iceland also exports aluminium and ferrosilicon (around one-third of total exports), as well as dairy products. Main imports are artificial corundum, motor cars, and petroleum oils other than crude.

Iceland's main customers are the Netherlands (20.3% of total exports), Spain (17.3%), the United Kingdom (11.1%), and France (8.1%). Its main suppliers are Norway (9%), Germany (8.8%), China (8.4%), the Netherlands (7.8%), and Denmark (7.2%). The European Union absorbs more than two-thirds of Icelandic exports and it supplies around half of the total imports (the country is a member of the European Economic Area - EEA).

After becoming exceptionally positive during the global economic crisis, the trade balance of goods has been negative since 2014: in 2020, the country exported USD 4.5 billion worth of merchandise (-12.2% y-o-y), importing USD 5.7 billion (-13.2%). However, Iceland is a net service exporter (USD 2.7 billion of export vs. USD 2.21 billion of imports in 2020 – data by WTO). Following a contraction of almost 50% in services exports, the overall external balance for goods and services turned negative in 2020 (estimated at -0.7% of GDP by the World Bank).
As per the latest figures by Statistics Iceland, for the year 2021, the total value of exported goods was ISK 759.1 billion (up by 22.4% y-o-y), against a total value of imports of ISK 996.4 billion (+29.2%).

 
Foreign Trade Indicators 20162017201820192020
Imports of Goods (million USD) 5,6996,9657,6796,5675,698
Exports of Goods (million USD) 4,4564,8785,5565,2234,586
Imports of Services (million USD) 3,2343,7244,2623,6112,227
Exports of Services (million USD) 5,4096,2556,5375,6352,765
Imports of Goods and Services (Annual % Change) 14.611.80.9-8.4-22.5
Exports of Goods and Services (Annual % Change) 11.05.11.7-4.7-30.2
Imports of Goods and Services (in % of GDP) 40.841.243.339.835.0
Exports of Goods and Services (in % of GDP) 47.545.746.644.334.2
Trade Balance (million USD) -799-1,525-1,460-857-667
Trade Balance (Including Service) (million USD) 1,4111,1199231,252-122
Foreign Trade (in % of GDP) 88.387.090.084.169.2

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

 

Main Partner Countries

Main Customers
(% of Exports)
2020
Netherlands 20.3%
Spain 17.3%
United Kingdom 11.1%
France 8.1%
United States 7.6%
See More Countries 35.6%
Main Suppliers
(% of Imports)
2020
Germany 9.0%
Norway 8.8%
China 8.4%
Netherlands 7.8%
Denmark 7.2%
See More Countries 58.9%

Source: Comtrade, Latest Available Data

 
 

Main Products

4.6 bn USD of products exported in 2020
Unwrought aluminiumUnwrought aluminium 29.4%
Fish fillets and other fish meat, whether or not...Fish fillets and other fish meat, whether or not minced, fresh, chilled or frozen 21.5%
Fish, fresh or chilled (excl. fish fillets and...Fish, fresh or chilled (excl. fish fillets and other fish meat of heading 0304) 7.2%
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 6.3%
Frozen fish (excl. fish fillets and other fish...Frozen fish (excl. fish fillets and other fish meat of heading 0304) 5.8%
See More Products 29.7%
5.7 bn USD of products imported in 2020
Artificial corundum, whether or not chemically...Artificial corundum, whether or not chemically defined; aluminium oxide; aluminium hydroxide 8.0%
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) 6.0%
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 5.9%
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 5.1%
Medicaments consisting of mixed or unmixed...Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses incl. those in the form of transdermal administration or in forms or packings for retail sale (excl. goods of heading 3002, 3005 or 3006) 3.0%
See More Products 72.0%

Source: Comtrade, Latest Available Data

 
 

To go further, check out our service Import Export Flows.

 
 

Main Services

Source: United Nations Statistics Division, Latest Available Data

Return to top

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

Return to top

Political Outline

Current Political Leaders
President: Guðni Th. JÒHANNESSON (since 1 August 2016) – independent
Prime Minister: Katrín JAKOBSDÒTTIR (since 30 November 2017) – Left-Green Movement
Next Election Dates
Presidential: 2024
Parliamentary: 2025
Main Political Parties
The political parties in the ruling coalition are:
- Independence Party (IP): centre-right, conservative, opposes joining the European Union
- Progressive Party (PP): centre-right, agrarian, liberal
- Left‑Green Movement (LGM): left-wing, advocates traditional socialist values, feminism and environmentalism

The main oppositions party are:
- Social Democratic Alliance (SDA; nine seats): centre-left, social-democratic party, based on the merger alliance of the People's Alliance (PA), Social Democratic Party (SDP) and Women's List
- People's Party: left-wing, socialist, populist
- Pirate Party (PIR): centre-left
- Reform Party: liberal
- Centre Party (CP): populist, euro-scepticism
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 "Althing") 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

Source: World Press Freedom Index, Reporters Without Borders

 

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

 

Return to top

COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID-19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Iceland, please visit the portal Covid.is with the official data, including the geographical and age distribution of the epidemic. To consult the daily reports issued by the Directorate of Health, click here.
For the international outlook you can consult the latest
situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures

To find out about the latest public health situation in Iceland and the current sanitary measures in vigour, please consult the official portal Covid.is, including the up-to-date information on the containment measures put in place and public health recommendations. Further info can be found on the website of the Directorate of Health and on the official portal of the Government of Iceland.

Travel restrictions

The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.

The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.

Import & export restrictions

For the information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), please consult the portal of Iceland Revenue and Customs.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Iceland on the
International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

To know about the economic measures taken by the Icelandic government to address the impact of the COVID-19 pandemic on the national economy, please visit the dedicated page on the official portal of the Government of Iceland and that of the Ministry of Finance and Economic Affairs. For a list of the decisions taken by the Central Bank of Iceland (CBI), click here. An overview of the measures is available on the website of KPMG.
For the general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Icelandic government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Iceland in the
IMF’s Policy Tracker platform.

Support plan for businesses

For the information on the local business support scheme and taxation measures established by the Icelandic government to help businesses to deal with the economic impacts of the COVID-19 epidemic on their activity, please consult the portal of the Government of Iceland and the website of the Ministry of Finance and Economic Affairs.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the World Bank's Map of SME-Support Measures in Response to COVID-19.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

Support plan for exporters

At the moment the official government sources do not provide any information on the specific programs for Icelandic exporting companies put in place by the national government following the COVID-19 epidemic outbreak. For updated information please consult the website of the national Ministry of Finance and Economic Affairs.

 

Any Comment About This Content? Report It to Us.

 

© Export Entreprises SA, All Rights Reserved.
Latest Update: July 2022