Íslandsbanki’s new macroeconomic forecast predicts that if the COVID-19 epidemic is tackled by next summer, the Icelandic economy can still recover well.
According to RÚV, the forecast covers the next two years and assumes that a vaccine against COVID-19 will be ready for distribution to the general public by next summer.
Íslandsbanki’s chief economist, Jón Bjarki Bentsson, told RÚV that they predict a 8.6% reduction in growth for this year, due in large parts to a decrease in exports and lower consumption and investment, but also a strong possibility for a good recovery.
Jón points out that it is important to rely more on sectors like exports and innovation, which might take a while if the tourism industry has to recover simultaneously. He says that they are expecting 800,000 tourists next year, which is a modest forecast compared to recent years. To compare, there were almost 2 million foreign tourists last year.
Interest rates are expected to remain unchanged until the middle of next year and then slowly rise again.
“Interest rates will still be lower in the coming years than what we have been used to in the Icelandic economy,” Jón tells RÚV. “But we are probably at the bottom now and until the middle of next year.”
After this year’s dip, the bank still predicts 3.1% of economic growth next year and 4.7% economic growth in 2022. However, this forecast remains dependent on the distribution of a vaccine for COVID-19.
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