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Iceland’s Economic Growth Not As Great As It Seems

Iceland’s Economic Growth Not As Great As It Seems

Published February 22, 2013

The capital controls that have helped to stabilize the króna in the wake of the 2008 collapse and assist Iceland’s economy in achieving some growth are both a blessing and a curse.
Reuters reports that the same controls that have helped Iceland to sustain a 2% growth – greater than that being experienced throughout continental Europe – are weighing down the country’s big ticket companies, like gaming powerhouse and Eve Online creators CCP, which operate on a global scale and need to freely conduct business with investors operating in foreign currencies.
“The economic remedy has now become part of the problem,” said CCP CEO Hilmar Pétursson. “We are not building the company as fast as we could from a global perspective.”
The capital controls make it very difficult for the company to purchase the foreign currency it needs and to conduct business with equity investors abroad.
While 2% growth is admirable compared to Iceland’s European peers, it is still well below the 4.5% the International Monetary Fund (IMF) had predicted for the country in 2011 through 2013, due, in part, to inflation being stubbornly high and for ongoing intervention from the Central Bank to keep the currency afloat.
Reuters notes that the parliamentary elections scheduled for April are only adding to the uncertainty in the country, as voters are growing weary of austerity. “Polls show centre-right parties [Independence Party and Progressive Party] widely seen as responsible for the crisis may replace a leftist government.”



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