Thanks to the tourist boom following the 2008 financial crisis, Iceland’s economy has experienced a period of strong growth, despite it being one of the countries worst affected by the crash. Now, this growth has started to slow. Fortunately there’s no need to panic just yet: according to a central chief banker speaking to Reuters, this slowdown is not a bad thing at all.
“The risk of overheating and a hard landing is significantly smaller now than a year ago,” said Central Bank chair Már Guðmundsson, speaking to Reuters at a conference in Copenhagen on Tuesday.
The Central Bank lowered its 2017 forecast last week after growth in exports slowed, fuelled in part by strike action taken by the fishing industry. According to the new predictions, the economy is now expected to expand only 3.7% this year—half as much as last year.
Hitting targets
Már believes that this slowdown will bring the economy closer to its long-term potential faster than previously believed, lowering the risk of an overheating, which could negatively affect wages and damage tourism and exports.
In October, the inflation rate rose to 1.9% from 1.4% in September. The target for the Central Bank is to keep the 12-month inflation rate around 2.5%. Már says that he expects to meet this target in the middle of next year.
“I haven’t seen as good an inflation forecast as we have now for a very long time, and probably ever in my career,” said Már. He believes that once the target has been hit, inflation will remain around 2.5% to 3% until the end of 2020 at least.
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