After contracting by 6.5% in 2020, the Icelandic economy regained its footing in 2021 and is positioned for strong GDP growth in the next three years.
For 2022, the forecast is for 4.7% GDP growth, a current account surplus, declining unemployment, and an appreciation of the ISK. Rising tourist numbers and a bountiful capelin season are among the key drivers of growth. Inflation will ease slowly, but the policy rate will rise to 3.25% by the year-end. Furthermore, house price inflation is projected to lose momentum over the course of the year, with prices rising by just under 8%, on average, in 2022 as a whole.
Macroeconomic forecast 2022-2024
Íslandsbanki Research issues macroeconomic forecast for 2022-2024
Main findings
GDP: 4.7% GDP growth in 2022, 3.2% in 2023 and 2.6% in 2023
External trade: Current account surplus estimated at 1.8% of GDP in 2022 and over 3% in 2023 and 2024.
Inflation: Inflation to average 3.2% in 2022, 2.4% in 2023 and 2.7% in 2024.
Labour market: Unemployment to average 4.5% in 2022, 3.7% in 2023 and 3.6% in 2024.
Interest rates: Policy rate projected at 3.25% by end-2022 and to average 3.5% in 2023 and 3.9% in 2024.
The ISK: ISK appreciation estimated at 3.3% in 2022, 4.7% in 2023, and 0.3% in 2024.
