Icelandic Economy Q4 2022

The Iceland Chamber of Commerce has published a new quarterly edition of The Icelandic Economy. The report is in English and gives a unique and comprehensive overview of the economy.

The report includes economic developments in the past quarter, short-term indicators, developments in external trade, evolution and comparison of energy prices in Iceland and Europe, other recent developments and both the structural and institutional framework of the economy.

Economic Developments

The Icelandic economy has nearly fully recovered after a short, although sharp, contraction in GDP in 2020. Economic growth is expected to be 5.9% in 2022, accelerated by the speedy recovery of the tourism sector and robust private consumption. Despite a hefty increase in exports, in part due to record exports of farmed fish, the current account was still negative in the second quarter of 2022. Iceland’s net international investment position remains strong and measured positive 24% of GDP at the end of Q2/2022.

12-month inflation measured by the CPI decreased for the second month in a row, coming in at 9.3% in September. Lower inflation can be traced back to slowdowns in rising housing prices, which have driven inflation for the past year. The evolution of inflation indicates that the CBI actions, such as rising interest rates, have been somewhat successful. However, it is foreseeable that inflation will not reach target levels soon.

The first tranche of Iceland’s market status upgrade to FTSE Russel’s Secondary Emerging Market took place on the 19th of September, with stock market turnover reaching peak-levels. The upgrade will help facilitate capital raising opportunities for listed companies and hopefully further spark the interest of foreign investors.

The size of the financial system grew sizeably in 2021, not only in absolute terms but also relative to GDP. The assets of the financial systems are mostly in the hands of banks and pension funds, whereas the latter assets account for 43% of total assets in the financial system. Limited, and declining, business and households’ insolvencies suggest that the financial system is not only sound, but also further improving. This is further cemented in the banks’ declining non-performing loan ratio, which is also historically low.

Iceland at Glance

Iceland ranks 16th out of 63 countries in IMD’s 2022 competitiveness report, whereas infrastructure and business efficiency rank 8th and 4th, respectively. In this regard, Iceland punches well above its weight in competitiveness. The country also ranks highly on several other international indicators, such as gender equality, global peace, and social progress.

The Icelandic economy is increasingly being diversified, but the composition of the GDP has not changed drastically in the last 20 years. A noticeable difference is the contracted contribution of manufacturing and agriculture activities to the Icelandic economy. The contribution of the tourism industry last year was low compared to the years before, where its contribution to GDP was 8% in 2019.

Industrial Framework

Iceland is a parliamentary republic with a large public sector. The Central Bank targets inflation and the financial system is characterized by prominent pension funds and banks.

The Icelandic economy has undergone drastic changes in recent years and for a small open economy, it is important to frequently convey useful information to stakeholders. Therefore, the report is sent to thousands of recipients in business, governmental administration, and other organisations around the world, in addition to being freely available online.

The Chamber offers a presentation based on the report. For further information, please contact our Economists, Elísa Arna Hilmarsdóttir ( and Gunnar Úlfarsson (