Iceland: Economy Overview

27 January 2010
by Ina Dimireva -- last modified 20 December 2010

Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system. Prior to the 2008 crisis, Iceland had achieved high growth, low unemployment, and a remarkably even distribution of income.

Economy - overview:

The economy depends heavily on the fishing industry, which provides 40% of export earnings, more than 12% of GDP, and employs 7% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, with new developments in software production, biotechnology, and tourism. Abundant geothermal sources have attracted substantial foreign investment in the aluminum and hydropower sectors and boosted economic growth, although the financial crisis has put several investment projects on hold. Much of Iceland's economic growth in recent years came as the result of a boom in domestic demand following the rapid expansion of the country's financial sector. Domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign-currency loans, following the privatization of the sector in the early 2000s. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country secured over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to back government guarantees for foreign deposits in Icelandic banks. GDP fell 6.6% in 2009, and unemployment peaked at 9.4% in February 2009. GDP growth is expected to be near zero in 2010. Since the collapse of Iceland's financial sector, government economic priorities have included stabilizing the krona, reducing Iceland's high budget deficit, containing inflation, restructuring the financial sector, and diversifying the economy. Three new banks were established to take over the domestic assets of the collapsed banks. Two of them have foreign majority ownership, while the State holds a majority of the shares of the third. British and Dutch authorities have pressed claims against Icelandic Landsbanki to compensate their citizens for losses suffered on deposits held in that bank. The collapse of the financial system initially led to a major shift in opinion in favor of joining the EU and adopting the euro, although support has dropped substantially because of concern about losing control of their fishing resources and in reaction to measures taken by EU partners following the financial crisis.

GDP (purchasing power parity):

$12.09 billion (2009 est.)
country comparison to the world: 142
$12.98 billion (2008 est.)
$12.85 billion (2007 est.)
note: data are in 2009 US dollars

GDP (official exchange rate):

$12.14 billion (2009 est.)

GDP - real growth rate:

-6.8% (2009 est.)
country comparison to the world: 202
1% (2008 est.)
6% (2007 est.)

GDP - per capita (PPP):

$39,400 (2009 est.)
country comparison to the world: 20
$42,600 (2008 est.)
$42,600 (2007 est.)
note: data are in 2009 US dollars

GDP - composition by sector:

agriculture: 5.2%
industry: 24.1%
services: 70.7% (2009 est.)

Labor force:

189,900 (2009 est.)
country comparison to the world: 173

Labor force - by occupation:

agriculture: 4.8%
industry: 22.2%
services: 73% (2008)

Unemployment rate:

8% (December 2009 est.)
country comparison to the world: 86
1.6% (December 2008 est.)
note: this figure climbed to 9.4% as of Februar 2009

Investment (gross fixed):

13.9% of GDP (2009 est.)
country comparison to the world: 140

Budget:

revenues: $5.144 billion
expenditures: $6.252 billion (2009 est.)

Inflation rate (consumer prices):

12% (2009 est.)
country comparison to the world: 206
12.7% (2008 est.)

Commercial bank prime lending rate:

18.99% (31 December 2009 est.)
country comparison to the world: 24
19.29% (31 December 2007)

Stock of domestic credit:

$NA (31 December 2008)
$72.88 billion (31 December 2008 est.)

Agriculture - products:

potatoes, green vegetables; mutton, dairy products; fish

Industries:

fish processing; aluminum smelting, ferrosilicon production; geothermal power, tourism

Industrial production growth rate:

-10% (2009 est.)
country comparison to the world: 139

Oil - production:

0 bbl/day (2008 est.)
country comparison to the world: 173

Natural gas - production:

0 cu m (2008 est.)
country comparison to the world: 175

Current account balance:

$-440 million (2009 est.)
country comparison to the world: 110
$-3.572 billion (2008 est.)

Exports:

$4.05 billion (2009 est.)
country comparison to the world: 114
$5.399 billion (2008 est.)

Exports - commodities:

fish and fish products 70%, aluminum, animal products, ferrosilicon, diatomite

Exports - partners:

Netherlands 30.71%, UK 12.73%, Germany 11.21%, Norway 5.75%, Spain 4.82% (2009)

Imports:

$3.318 billion (2009 est.)
country comparison to the world: 133
$5.699 billion (2008 est.)

Imports - commodities:

machinery and equipment, petroleum products, foodstuffs, textiles

Imports - partners:

Norway 12.97%, Netherlands 8.62%, Germany 8.3%, Sweden 8.03%, Denmark 7.27%, US 6.94%, China 4.98%, UK 4.55%, Brazil 4.09% (2009)

Debt - external:

$3.073 billion (2002)
country comparison to the world: 124

Stock of direct foreign investment - at home:

$NA

Stock of direct foreign investment - abroad:

$NA
$8.8 billion (31 December 2008)

Exchange rates:

Source: CIA - The World Factbook