Slow Economic Growth Is Worrying Says IMF - The Reykjavik Grapevine

Slow Economic Growth Is Worrying Says IMF

Published August 7, 2013

Iceland’s economy is on the right track although fall-back of the country’s economic growth is of concern, according to IMF’s report for 2013.

Economic growth was 2.9% in 2011 but only 1.6% in 2012. Unemployment has reduced at the same time, from 9.2% at its peak in September 2010 to 5.1% last May, RÚV reports.

Inflation was only 3.3% in June this year and compared to January 2009, when it peaked at 18.6%, it’s a sign of much progress, according to the report. However, current inflation is still higher than the Central Bank’s inflation target, which is 2.5%.

Despite the report being on a rather positive note, the IMF is concerned about state finance. All signs point to the state budget deficit for 2013 becoming larger than was estimated, the reason being less economic growth, higher expenses, lower dividends and fewer assets sales than predicted.

Furthermore, it is noted in the report that the budget deficit for 2014 might increase due to sumptuous campaign promises, such as tax cuts and mortgage relief plans.

IMF is also concerned about the slow process of lifting the currency restrictions. However, the status of Icelandic banks has improved greatly while the Housing Financing Fund is in a very difficult position.

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