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Iceland Mag

Economy

GDP of Iceland projected to grow 4.2% in 2016, unemployment and inflation to remain low

By Staff

  • Strong growth The Central Bank of Iceland points out that despite a worsening global outlook the Icelandic economy will continue to expand, thanks to growing domestic demand, strong exports and tourism. Photo/Pjetur Sigurðsson. 

The Icelandic economy continues to grow. According to the Monetary Bulletin of the Central Bank of Iceland, published on Thursday, economic growth in 2016 will be a robust 4.2%, unemployment and inflation will remain below target and purchasing power will continue to growth at a record pace.

Read more: Business Iceland project 11,500 new jobs will be created 2015-2017: workers must be hired from abroad

The Central Bank now estimates that the Icelandic economy grew slightly slower in 2015 than initially estimated. The previous estimate put growth in 2015 at 4.1% of GDP, which is 0.5 percentage points less than the bank’s previous estimates had envisioned. At the same time, however, the bank has raised its projection for growth in 2016 from 3.1% to 4.2%.

The main driver of economic growth in 2016 is expected to be domestic demand which is projected to grow robustly as purchasing power continues to grow and unemployment remains low. Purchasing power of disposable income grew by 8% in 2015, and is expected to grow by 9% in 2016. This is the most dramatic increase in the purchasing power of disposable income since 2007. Despite this inflation will remain 2-3% through 2016, according to the Central bank, thanks to low oil-prices and low inflation globally.

Read more: Immigration necessary for economic growth Business Iceland argues

Unemployment continued to shrink in 2015 and is expected to remain low for the foreseeable future. Long-term unemployment has not been lower since the first quarter of 2009, and the labour participation rate has risen in recent years. The Central bank estimates unemployment will be 3.7% in 2016, and the labour participation rate to be 79% of those aged 16-74 years old. Unemployment will remain around 3.5% throughout 2018.

Strong economic growth and low unemployment has led to considerable pressure on the labour market. Roughly a quarter of the 400 largest business in Iceland report they are facing a shortage of qualified workers. The labour shortage is greatest in construction, transportation and tourism. 60% of businesses in construction reported to having felt a labour shortage, and 40% of companies in transportation and tourism.

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