Iceland

Overheating
The economy continues to show signs of overheating, as the large scale aluminium-related investment projects are in full swing and household demand is booming. The external deficit is soaring and inflation exceeds the authorities’ upper tolerance limit. The major challenge for policymakers is to ensure an orderly unwinding of the present imbalances and to prevent their recurrence in the future.
Prices and wage pressures have mounted. Further interest rate increases are probably required to put inflation on a downward track towards the 2.5% official target. Avoiding a premature loosening of the fiscal stance would reduce upward pressure on interest rates and help avoid excessive exchange rate fluctuations, thereby facilitating the stabilisation task of monetary policy.
Population (000s), 2004293
Area (000 sq km)103
CurrencyKrona
GDP (Billion USD), 200412.2
Life expectancy at birth (Women, Men), 2003 82.5, 78.7
Total labour force (000s), 2004161
Government typeConstitutional Republic
Indicators% change unless otherwise indicated
200520062007
GDP growth6.64.62.6
Consumer price index3.94.03.4
Short-term interest rate (%)9.211.09.8
Unemployment rate (%)2.51.92.2
General government financial balance (% GDP)2.01.2-0.5
Current account balance (% GDP)-12.1-12.9-10.5
Source: OECD© OECD Observer, No. 252, November 2005


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