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23 Jun 2023
IMF Executive Board Concludes 2023 Article IV Consultation with Iceland
The Icelandic economy has shown remarkable resilience and rebounded quickly from the multiple shocks in recent years. Real GDP grew by 6.4 percent in 2022, the fastest since 2007, on the back of a strong rebound in tourism and domestic demand, and higher incomes from an improvement in the terms of trade. The economy is currently operating well above potential which, together with high import and house prices, has pushed inflation significantly above target, and contributed to external imbalances. The Central Bank of Iceland has raised the policy rate by 800 basis points between April 2021 and May 2023, and tightened macroprudential measures. Fiscal policy was contractionary in 2022, though not enough to sufficiently slow domestic demand, and the underlying fiscal stance deteriorated.
