The Research Division of Arion Bank warns that the Icelandic króna is strengthening faster than the economy can deal with in the long term.
RÚV reports that according to the Research Division’s report, entitled “Don’t Fly Too Close To The Sun”, it is now about 45% cheaper for Icelanders to shop abroad than it was just two years ago. Arion Bank believes the króna will continue to strengthen, but this does not necessarily imply good times lie ahead:
“We see that the króna will continue to strengthen in the short term,” the report reads in part. “But by our measurements, the króna has become stronger than the economy can deal with in the long term. There is maybe reason for a warning light to turn on now.”
While emphasising that the economy is good right now, economist Konráð S. Gíslason told reporters that Iceland is also dealing with circumstances that it has never contended with before: an unprecedented boom in tourism. This has strengthened the króna at a rate Iceland has never experienced.
In fact, prices in Iceland are now more expensive than they are in Norway, and Iceland is now only 7% cheaper than Switzerland, which is regarded as the most expensive country in the world by IMF.