Current State, Recent Developments and Future Outlook2018 edition
The Icelandic Economy
Á eftir að uppfæra
Iceland Chamber of Commerce | 2
KEY FACTSFOREWORD
1. ECONOMIC LANDSCAPE
2. INSTITUTIONAL FRAMEWORK
3. FINANCIAL SECTOR
4. DOMESTIC SECTOR
5. RESOURCE SECTOR
6. INTERNATIONAL SECTOR
7. FUTURE PROSPECTS
Front page artwork: Inga Dóra (Eins og var)
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TABLE OF CONTENTS
Iceland Chamber of Commerce | 3
The total land area is 103,000 km2
and the population is 360,384
Iceland‘s parliament, Althingi is theoldest surving parliament in the world, founded in 930 AD
Former president Vigdís Finnbogadóttir became the first democratically elected female headof state in 1980
Iceland is a member of NATO butdoes not have any military forces
Iceland‘s search and rescue services are solely volunteer-run
Iceland‘s Gross Domestic Product(GDP) per capita in 2018 was USD 55,917 (PPP)
The currency is Icelandic Króna (ISK), USD 1=ISK 121 (25 July 2019)
In 2018 unemployment was 2.7% and in July 2019 inflation was 3.1%
Iceland‘s current account surplus in 2018 was 2.9% of GDP
The main exports are tourism (39% of total), seafood (18%) and aluminium (17%)
Government debt-to-GDP ratio in 2018 was 38%
Did you know? Key facts about the economy
KEYFACTS
Iceland Chamber of Commerce | 4
Ásta S. FjeldstedManaging Director,Iceland Chamberof Commerce
“What goes up must come down.” Those words of Sir Edward Newton have undoubtedly come to someone’s mind in recent years watching the Icelandic economy outgrowing most other OECD countries. Particularly since Iceland faced an unprecedented financial and economic crisis when its three major banks, which assets amounted to over 9-fold GDP collapsed in the matter of days just over a decade ago. This recovery story is something Icelanders and others can learn from and is ingrained in this report.
FOREWORDÁSTA S. FJELDSTED
Iceland Chamber of Commerce | 5
Current Landscape ECONOMIC
LANDSCAPE1
Iceland Chamber of Commerce | 6
QatarMacao SARLuxembourgSingaporeBrunei DarussalamIrelandNorwayUnited Arab EmiratesKuwaitSwitzerlandHong Kong SARUnited StatesSan MarinoNetherlandsSaudi ArabiaICELANDTaiwan Province of ChinaSwedenGermanyAustraliaAustriaDenmarkBahrainAustriaCanadaBelgiumOmanFinlandFranceUnited KingdomMaltaJapanKoreaSpainNew ZealandCyprusPuerto RicoItalyArubaIsrael
Iceland has outgrown most developed countries in recent years
Figure 1.1
Country rankings, GDP per capita (PPP1 adjusted)
Sources: IMF World Economic Outlook; Iceland Chamber of Commerce
1980 ranking 2016 rankingUnited Arab EmiratesQatarSaudi ArabiaKuwaitLibyaBahrainSwitzerlandLuxembourgNorwayUnited StatesCanadaNetherlandsDenmarkGermanyAustriaBelgiumFranceICELANDItalySwedenAustraliaFinlandThe BahamasGreeceGabonSingaporeNew ZealandUnited KingdomJapanOmanSpainVenezuelaTrinidad and TobagoPuerto RicoIrelandIsraelHong Kong SARHungaryArgentinaCyprus
1
1 Purchasing Power Party
40
30
10
20
1986 199819921980 2004 2010 2018
Iceland Chamber of Commerce | 7
Iceland ranks highly in numerous competitive indicesFigure 1.2
Competitiveness Rankings (Iceland‘s most recent rank1 / total number of countries)
Source: Respective websites
1 Sources obtained May 2019, with the exception of the Global Innovation Index, which was obtained in July 2019
Social Progress Index (SPI)
Gender Equality (WEF)
6
11
203140
180
2
Media Freedom (Freedom House)
Global Peace Index (IEP, vision of humanity)2
125
Democracy Index (The Economist)
Environmental Performance Index (YALE)
Human Development (UN)
Global Competitiveness Index (WEF)
1111Economic Freedom (HF)14
Competitiveness (IMD)
Corruption (Transparency Int.)20Global Innovation Index (INSEAD)20Property Rights Index (IPRI)
149
21Doing Business (WB)
180
2424
47
9
167163
146189
Globalization (KOF)
180
188
126
63
199
Iceland’s ranking # of countries ranked
Iceland Chamber of Commerce | 8
Iceland‘s competitiveness has slowly but steadily been improving this decade
Figure 1.3
Iceland’s Competitiveness in IMD’s report (Strenghts, weaknesses and recent developments)
Sources: IMD Business School; Iceland Chamber of Commerce
Iceland‘s overallcompetitiveness
Strengths Weaknesses Iceland’s position
Economicperformance1 High
employmentSize of the economy
54/63
Governmentefficiency
2 Societal framework
Taxes 15/63
Businessefficiency
3 Attitudes and values
Finances 19/63
Infrastructure4Basic infrastructure
Scientific infrastructure
13/63
31 26 29 25 24 23 20 24 20
2011 2012 2013 2014 2015 2016 2017 2018 2019
Iceland Chamber of Commerce | 9
GDP growth (Percent)
Figure 1.4
Sources: Statistics Iceland; Central Bank of Iceland (Monetary Bulletin 2019/2); Iceland Chamber of Commerce
The economy has been experiencing robust growth but a mild recession is anticipated this year
2011
2009
2004
2003
-0.4
2017
2007
2001
0.7
2002
2008
2006
2005
2010
2012
2013
6.6
-3.4
2014
2016
2015
2018
2019
2020
2021
3.94.6
2.3
6.3
8.0
5.2
9.4
2.0
-6.8
1.9 1.3
4.1
2.1
4.7 4.6
2.4 2.6
Actual Projected
Iceland Chamber of Commerce | 10
Annual GDP growth 2014 to 2018 (Percent)
Iceland‘s economy was one of the fastest growing in theworld in 2016, but growth has since slowed
Figure 1.5
Sources: OECD statistics; Iceland Chamber of Commerce; Statistics Iceland
2.11.8
2.6
20162014
1.81.81.2
1.9
2015 2017 2018
1.4
2.2
4.7
2.12.6
6.6
1.72.0
4.6
2.4 2.4
4.6
2.3
Iceland Other Nordics Euro area OECD total
Iceland Chamber of Commerce | 11
Corporate and Household Debt (Percent of GDP)
Figure 1.6
Source: Central Bank of Iceland (Monetary Bulletin 2019/2)
Private debt declined significantly after the financial crisis but has increased slightly in the last two years
0
50
100
150
200
250
300
350
2004 2008 2010 20182006 20142012 2016
158
233
347
270
164
Corporate debt Household debt
Iceland Chamber of Commerce | 12
Unemployment Rate (Percent; yearly average)
Figure 1.7
Source: Statistics Iceland
Unemployment is rising again after a gradual decline since 2010
1 First quarter
0
1
2
3
4
5
6
7
8
9
2009 20132001 2011
5.4
2003 20152005 2007 2017 20191
3.0 3.0
7.6
2.73.0
Iceland Chamber of Commerce | 13
Annual Inflation Rate (Percent)
Figure 1.8
Sources: Central Bank of Iceland; Statistics Iceland; Iceland Chamber of Commerce
Inflation has been near the Central Bank’s inflation target for over five years
-5
0
5
10
15
20
25
2006
2000
2001
2007
2005
2002
2003
21.020
04
2015
2008
18.6
2009
2010
2011
2012
2018
2013
2014
2016
2017
2019
Inflation Central Bank’s inflation targetInflation excluding housing
Iceland Chamber of Commerce | 14
Interest rates in Iceland appear to be converging to other developed economies
Figure 1.9
Sources: Central Bank of Iceland; Iceland Chamber of Commerce
Central Bank Key Interest Rates (Percent)
5.0%
0.5%
2.0%
2011 20142013 2016
6.0%
2017 20182015 201920120.0%
1.0%
1.5%
2.5%
3.0%
3.5%
4.0%
4.5%
5.5%
2.50%
0.00%
3.75%
Iceland Euro area USA
Iceland Chamber of Commerce | 15
The devaluation of the Króna balanced out a persistent current account deficit and supported a surplus since 2009
Figure 1.10
Sources: Central Bank of Iceland; Iceland Chamber of Commerce
Current Account Balance1 (Percent of GDP)
1 Underlying current account, excludes the effects of the failed banks‘ estates. The current account is a broader measure than trade balance and also takes into consideration factor income and financial transfers.
-25
-20
-15
-10
-5
0
5
10
20102000 2002 2006 20082004 2012 2014 2016 2018 2020
+5.2%
-10.9%
Central Bank forecastCurrent account balance Average 2000-2008
Average post crisis
Iceland Chamber of Commerce | 16
Even though the Króna has depreciated in the last two years, the real exchange rate remains high
Figure 1.11
Source: Central Bank of Iceland
EUR/ISK and Real Exchange Rate (A higher value indicates a weaker Icelandic Króna)
1 Inversed values, nomalised at EUR/ISK’s initial value
0
100
150
2000 2002 2004 2008 2012 2014 2016 20182010
200
2006
141
+107%
EURISK exchange rate Real exchange rate1
Iceland Chamber of Commerce | 17
Iceland‘s Net International Investment Position (NIIP) (Percent of GDP)
Figure 1.12
Source: Central Bank of Iceland; Iceland Chamber of Commerce
Iceland’s net foreign position has transformed with Iceland becoming a net lender to the rest of the world
1 First quarter of 2019
-700
-600
-500
-400
-300
-200
-100
0
100
20031995 20011997 20071999 2005 2009 2011 2013 2015 2017
-105
20191
-45
-654
-448
-375
-5
4 21
NIIP w/o estates Failed banks estates
Iceland Chamber of Commerce | 18
Iceland‘s Exports by Sectors1 (Bn. ISK at 2017 prices)
Figure 1.13
Sources: Statistics Iceland; Iceland Chamber of Commerce
Iceland has historically been dependent on fishing but three other export foundations have since emerged
1 All air transport is included in the tourism sector whereas 50% of passenger transport by air is usually included in the international sector in chamber analysis.
0
1,000
600
200
400
800
1,200
1,400
18%53%
1995
19%
1997 2000 2003 2006 2009
24%
2012 2015
39%
2018
International sector11 EnergyTourism1 Seafood
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INSTITUTIONALFRAMEWORK2
Iceland Chamber of Commerce | 20
Figure 2.1
Source: Althing
Eight parties have representatives in Althingi – Iceland‘s ParliamentIllustrative; Parliamentary parties, number of MP’s and ministerial posts
Independence Party
Progressive Party
Left Green Movement
Parliamentary Parties Regular MP‘s
People‘s Party
Center Party
Pirate Party
Social Democratic Alliance
Liberal Reform Party
Majority
Minority
Prime Minister
Minister of Education, Science and CultureMinister of Justice
Minister of Health
Minister of Transport and Local Government
Speaker of Althingi
Minister of Financeand EconomicMinister of Fisheriesand AgricultuureMinister for Foreign AffairsMinister of Tourism, Industry and InnovationMinister of Social Affairsand ChildrenMinister for the Environment and Natural Resources
Ministers & Speaker
Iceland Chamber of Commerce | 21
Majorities in the Seven Largest Municipalities (Parties by list letter codes)
Figure 2.4
Source: Iceland Chamber of Commerce
Most mayors in the largest municipalities have served longer than one term
7
5
5
2
3
8
4
2
1
1
2
2
1
2
2
1
1
5
5
11
5
5
3
4
Dagur B. Eggertsson – since 2014
Ármann Kr. Ólafsson – since 2014
Rósa Guðbjartsdóttir – since 2018
Ásthildur Sturludóttir – since 2018Akureyri
Municipality Council seats by party Mayor
Reykjavík
Kópavogur
Hafnarfjörður
Reykjanesbær
Garðabær
Mosfellsbær
Kjartan Már Kjartansson – since 2014
Gunnar Einarsson – since 2005
Haraldur Sverrisson – since 2007
S P C DV B L Y Minority
1 S – Social Democratic Alliance, C – Reform Party, D – Independence Party, P – Pirate Party, V – Left Green Movement, B – Progressive Party, L – L-list, Y – Direct way.
Iceland Chamber of Commerce | 22
Iceland’s Largest Trading Partners (Percent of total trade in goods and services in 2017)
Figure 2.3
Sources: Statistics Iceland; Iceland Chamber of Commerce
The EEA member states are some of Iceland‘s largest trading partners
1 Total share of imports and exports combined
55
15
3 2 2 1 1 1 1 1
China
10
EEA CanadaUSA
65
Australia JapanKSA Turkey Brazil Switzerland
Other states Britain EEA states
Iceland Chamber of Commerce | 23
General Government Debt1 (Percent of GDP)
Figure 2.4
Source: Central Bank of Iceland (Economic Indicators June 2019)
Public debt has decreased significantly in recent years and is primarily domestic
1 Central Bank forecast after 2018
37
27
92
38
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20162014200820062000 2002 20102004 2012 2018 2020
Gross debt Net debt
Iceland Chamber of Commerce | 24
General Government Tax Revenues in 20161 (Percent of GDP)
Figure 2.5
Sources: OECD; Statistics Iceland
Taxes on personal income are high while social security conbtributions are low due to private pensions
1 Tax on property in 2017 for Iceland due to one-off transactions regarding stability contributions of failed bank estates
8
3
9
0
2
11
14
3
3
0
2
12Goods and services
Payroll
Personal income
Corporate profits
Social security contributions
Tax on property
OECD Iceland
Iceland Chamber of Commerce | 25
General Government Spending in 20161 (Percent of GDP)
Figure 2.6
Sources: OECD; Statistics Iceland
Public spending is relatively high in Iceland with the exception of defence and social protection
6
1
2
4
1
1
6
1
5
16
8
0
1
5
1
1
8
3
8
10
Public order and safety
General public services
Housing and community
Defence
Education
Economic affairs
Environment
Recreation, culture and religion
Health
Social protection
OECDIceland
Iceland Chamber of Commerce | 26
Key Taxes in Iceland
Figure 2.7
Sources: PwC; Directorate of Internal Revenue; Iceland Chamber of Commerce, Ministry of Finance
The Icelandic tax system relies heavily on consumptionand labor income
1 Consumption taxes fall into two brackets, the lower being 11% which includes e.g. tourism related activities, media, books, and groceries; the higher 24% which is the general rate; some service is exempt from consumption taxes, such as health service, public transport and schools.2 Income taxes are divided between two brackets, the lower being 36.94% for the first ~895 thousand ISK of an individual‘s monthly income, and the higher being 46.24% for income above ~895 thousand ISK. Further, each individual has a tax free allowance in the form of a tax credit, ~56 thousand ISK in 2019, which is subtracted from the gross tax payable each month.
Lowered from 25.5%; lower bracket raised from 7% to 11% in 2015
New lower bracket of 33% introduced in 2020.
Unchanged since 2011 when it was increased from 18% to 20%
Increased from 20% to 22% in 2017. Tax base is under review.
Dividends / Capital gains
Tax Rate Recent and proposed changes
11%
37%
20%
22%
24%
46%
6.6%
VAT1
Labour income2
Corporate tax
Lowered by 0.25 pp in 2019 and a further 0.25 pp is planned
Payroll tax
Higher bracketLower bracket
Iceland Chamber of Commerce | 27
Exchange Rate Fluctuations Against the Euro (Annualised volatility)
Figure 2.8
The Icelandic Króna has been one of the most volatilecurrencies in the developed world
1 From 1st of January 2010 till 13th of March 20172 From 13th of March 2017 till 14th of July 2019
Sources: Central Bank of Iceland; Iceland Chamber of Commerce
21%
13%
11%
8% 8%7%
5%
12%
10%9% 8%
7%
10%
8%7% 7% 6% 6%
Swedish KronaBritish PoundIcelandic Króna Norwegian Krona
Japanese Yen US Dollar
Free-floating (2003-2009)Period under capital controls (2010-2017)1
Post outflow controls (2017-July 2019)2
Iceland Chamber of Commerce | 28
The Central Bank has a large cushion to fend off short-term exchange rate fluctuations
Figure 2.9
Foreign Exchange Reserves (Percent of GDP at year-end)
1 FX reserves less Central Bank‘s foreign currency liabilities, i.e. FX reserves financed in ISK.2 June 2019
Sources: Central Bank of Iceland (Financial Stability 2018/1); Iceland Chamber of Commerce
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2005 20132007 2009 201922011 2015 2017
Total FX reserves Net FX reserves1
Iceland Chamber of Commerce | 29
FINANCIALSECTOR3
Iceland Chamber of Commerce | 30
The Icelandic banking system is less leveraged, much smaller and primarily serves the domestic market
Figure 3.1
Sources: Central Bank of Iceland; Iceland Chamber of Commerce
Aggregated Deposit-Taking Bank’s Balance Sheet1 (Percent of GDP)
144% 68%
325% 475%
110%
180%
367% 130%
94%
0%
600%
200%
400%
800%
1,000%
Assets Liabilities
3% 22%13%
23%17%
103%
22%
67%
0%
20%
40%
60%
80%
100%
120%
140%
Assets
3%
Liabilities
Domestic lending/depositsOther domestic
Foreign lending/depositsOther foreign
Equity
September 2008 May 2019
1 Arion Bank, Íslandsbanki, Kvika, Landsbankinn, savings banks and their predecessors. Assets and liabilities are classified by location, not currency. That means domestic assets can, for instance, be denominated in foreign currency.
Iceland Chamber of Commerce | 31
Iceland‘s Credit Ratings (Sovereign debt; Moody‘s, Fitch and S&P rating)
Figure 3.2
Iceland‘s credit rating has improved in recent years but is stagnant due to rising uncertainties
Sources: Central Bank of Iceland; Iceland Chamber of Commerce
Speculative grade
20192012 2013 2014 2015 2016 2017 2018
Ba1/BB+
Baa3/BBB-
Baa1/BBB+
Baa2/BBB
A3/A-
A2/A
A1/A+
Aa3/AA-
Aa2/AA
Aa1/AA+
Aaa/AAA
0.9%0.7%
2.2%Investmentgrade
S&P Moody’s Fitch 5-year EUR risk premia1
1 Interest rate differential between Icelandic and German government bonds at the time of issuance of Icelandic EUR bonds.
Iceland Chamber of Commerce | 32
Asset Value (Index, inflation adjusted, Jan. 2010 = 100)
Figure 3.3
Domestic assets appreciation has recently slowed down
Sources: GAM Management; Registers Iceland; Statistics Iceland; Iceland Chamber of Commerce
20152014 2016
180
2018 20190
100
140
120
2012 2017
160
20112010
200
2013
+10%
+0%
+9%
Real estateBondsEquity
YoY real return June 2019
Iceland Chamber of Commerce | 33
New Investment Inflows (Bn. ISK)
Figure 3.4
Restrictions on capital inflows (SRR), which have now been lifted, have influenced the composition of inflows
1 SRR = Special Reserve Requirement
Sources: Central Bank of Iceland (Economic Indicators June 2019); Iceland Chamber of Commerce
7
2015
22
2016 20182017
43
23
5
14
2019
62
4
138
2021
18 15
7
-6
11
Total outflowsGovernment bonds inflowsListed shares inflows
Other inflowsNet
Plan to liftcapital controlsannounced in June 2015
SRR on fixed-incomeinvestment1 SRR abolished1
Iceland Chamber of Commerce | 34
Private Pension Assets 2016 (Percent of GDP)
Figure 3.5
Despite a young population, Iceland has relatively one of the largest pension systems in the world
Source: OECD Global Pension Statistics
208%
184%
155%
149%
149%
145%
130%
105%
95%
90%
Iceland
Denmark
Australia
Netherlands
Canada
United States
Switzerland
UK
Sweden
Chile
Iceland Chamber of Commerce | 35
Old Age Dependency Ratio in 2018 (Population 65 and over to population 15-64
Figure 3.6
Iceland‘s population is the second youngest in the European Economic Area
Source: Eurostat
21%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Nor
way
Italy
Aus
tria
Finl
and
Swed
en
Gre
ece
Fran
ce
Port
ugal
Bulg
aria
Ger
man
y
Uni
ted
King
dom
Latv
ia
Switz
erla
nd
Croa
tiaEs
toni
aD
enm
ark
Lith
uani
aCz
echi
a
Irela
nd
Slov
enia
Slov
akia
Spai
nBe
lgiu
m
Cypr
us
Net
herla
nds
Hun
gary
Mal
ta
Rom
ania
Liec
hten
stei
nPo
land
Luxe
mbo
urg
Icel
and
Iceland Chamber of Commerce | 36
Pension Fund’s Total Assets (Billion ISK at 2018 prices)
Figure 3.7
Pension funds are outgrowing the economy due to decent returns and high premiums
Sources: Central Bank of Iceland; Statistics Iceland; Iceland Chamber of Commerce
3,000
1,000
0
2,000
1,500
500
2,500
3,500
4,000
4,500
2,796
1998 2000 2002 2004 2006 2008 2010 2012 20182014 2016
1,032
2,321
4,239
2,336
Domestic debtDomestic equity
Other domesticForeign equityForeign debt and other
Iceland Chamber of Commerce | 37
DOMESTICSECTOR4
Iceland Chamber of Commerce | 38
Composition of the Icelandic Economy (Percent of GDP)
Figure 4.1
The domestic sector accounts for about two thirds of the economy
Sources: Statistics Iceland; McKinsey & Company; Iceland Chamber of Commerce
Domestic Sector
63%
Resource Sector
25%
International Sector
12%
FinancialServices
Culture & Arts
Public Services Wholesale & Retail
Real Estate
Tourism & Transportation
Agriculture
Electricity & Water
Fisheries Metal Production
Construction
IT & Communications
Other Services
Other Manufacturing
Food Production
Iceland Chamber of Commerce | 39
Figure 4.2
Productivity has been increasing in Iceland, putting it above Finland in terms of GDP per hour worked
Source: OECD
GDP per Hour Worked in 2016 (US dollars, constant prices 2010 (PPP))
81
6562
57 55 54 53
0
10
20
30
40
50
60
70
80
90
FINDNKNOR SWE ISL Euro area GBR
Iceland Chamber of Commerce | 40
Figure 4.3
Productivity gains are different across sectors but are largest in sectors affected by tourism and technology
Source: Statistics Iceland
Productivity Changes by Sectors1 (Cumulative percentage change from 2008 to 2018)
1 All sector definitions are according to NACE V.22 Mining and quarrying; manufacturing; electricity, gas, steam and air conditioning supply; water supply; sewerage, waste management and remediation activities
66%
42%
38%
38%
36%
32%
19%
18%
14%
14%
7%
0%
0% 10% 20% 30% 40% 50% 60% 70%
Wholesale and Retail Trade
IT and Communications
Accommodation and Food
Agriculture, Forestry and Fishing
Transportation and Storage
Arts and Entertainment
Construction
Industry2
Rental and Leasing Services
Scientific and Technical Activities
Public Services
Financial and Insurance Activities
19.5% Average
Iceland Chamber of Commerce | 41
Wage Growth and Unemployment (Percent of workforce, percent change)
Figure 4.4
The labour market had a declining unemployment rate amid very high wage growth but that trend is now shifting
1 Measured as yearly change in the Wage Index
Source: Statistics Iceland
0%
2%
4%
6%
8%
10%
12%
201220112006 2007 201020092008 2013 2014 2015 2016 2017 2018
Wage growth1 Unemployment
Iceland Chamber of Commerce | 42
Net Changes in Labour Force (Percent change by background)
Figure 4.5
Iceland has experienced a strong influx of foreign labour in recent years
Sources: Statistics Iceland; Iceland Chamber of Commerce
2,3
2013201020092007
4,7
2006 2008 20142011 2012 2015 2016
3,0
2017 2018
3,0
4,7
0,2
-8,4
-1,7
0,91,7
2,5
4,7 4,6
Icelandic Immigrants
Iceland Chamber of Commerce | 43
Wage Increases in the Living Standard Agreement (USD1)
Figure 4.6
The Living Standard Agreement has multiple components with emphasis on absolute wage increases
Sources: Confederation of Icelandic Enterprise
Basic Monthly Minimum Wage Increases
Minimum wage
1362019
1922020
1922021
2002022
2,400
Min. Wage 2022 3,120
Yearly Add-Ons Linked to Economic Performance
+1.0%
+1.5%
+2.0%
+2.5%
+3.0%
GDP/Cap Wages
+24
+44
+64
+84
+104
Income Guarantee
If the wage indexincreasesproportionately morethan the minimumwage, the minimumwage automaticallyincreases to offset thedifference.
1 All numbers are USD based on the USDISK Exchange rate of 125
Iceland Chamber of Commerce | 44
Housing Prices and Investment (Indices (Jan. 97=100) until Jun. 18 and b. ISK)
Figure 4.7
Housing prices have increased rapidly in the last few years but since mid-2017 the market has slowed down
Sources: Statistics Iceland; Central Bank of Iceland; Registers Iceland; Iceland Chamber of Commerce
1 Housing prices/Disposable income per individual2 Billion ISK at 2017 prices, number for June 2018 is CBI’s forecast for the whole year3 Inflation and housing prices for June 2019 and Investment and income based on CBI forecast for the year
225243
149
0
100
200
300
2008
2003
1997
1998
2002
1999
2000
2001
2004
2005
2006
135
2018
2007
2009
2010
2017
2011
2012
2016
2013
2014
2015
2019
3
Real prices Price-to-income1 Residential housing investment2
Iceland Chamber of Commerce | 45
Population and Housing Growth (Percent change YoY)
Figure 4.8
A large gap has emerged between housing construction and population growth which finally appears to be closing
Sources: Statistics Iceland; Registers Iceland; Central Bank of Iceland; Iceland Chamber of Commerce
-0.5%
1.5%
-1.0%
0.0%
4.5%
0.5%
1.0%
2.0%
4.0%
2.5%
3.0%
3.5%
1998
1995
1996
1997
1999
2009
2007
2005
2001
2002
2003
2011
2004
2018
2006
2008
2010
2012
2013
2014
2015
2016
2017
2000
Housing unitsHousing adjusted for Airbnb
20 years old and older inhabitants
Iceland Chamber of Commerce | 46
RESOURCESECTOR5
Iceland Chamber of Commerce | 47
Keflavík Airport Passengers (Total and percent change)
Figure 5.1
Tourism is having a set-back this year after double-digit growth for almost a decade
Sources: Statistics Iceland; Registers Iceland; Central Bank of Iceland; Iceland Chamber of Commerce
1 ISAVIA‘s forecast in June 2019.
-30%
-20%
-10%
0%
10%
20%
30%
40%
1.5
0.0
2.5
0.5
1.0
2.0
2008 2009 2013 20172007 201912010 20182011
1.9
2012 2014 2015 2016
0.5
1.8
2.3
Number of tourists (million, r. axis)Tourists YoY change (l. axis)
Total passengers YoY change (l.axis)
Iceland Chamber of Commerce | 48
Relative Prices of Restaurants and Hotels (European Union = 100)
Figure 5.2
Consumer prices in Iceland are among the highest in Europe
Sources: Eurostat; Central Bank of Iceland; Iceland Chamber of Commerce
100
120
140
160
180
0
2009
2003
Jun.
201
9
2005
2006
2004
2011
2007
2008
2014
2010
2012
2013
2015
2016
2017
2018
EUDenmark
SwitzerlandFinlandSweden
IcelandNorway
Iceland Chamber of Commerce | 49
Card Turnover Per Tourist (Year over year change)
Figure 5.3
Depreciated Króna and more spending per tourist weighs against the drop in the number of tourists
Sources: Centre for Retail Studies; Statistics Iceland; Iceland Chamber of Commerce
-30%
20%
-20%
0%
-10%
30%
10%
40%
Jan.
19
Jan.
16
Mar
. 16
May
. 16
Jul.
16
Sep.
16
Nov
. 16
Jan.
17
Mar
. 17
May
. 17
Jul.
17
Sep.
17
Nov
. 17
Jan.
18
Mar
. 18
May
. 18
May
. 19
Jul.
18
Sep.
18
Nov
. 18
Mar
. 19
Current exchange rate Constant exchange rate
Iceland Chamber of Commerce | 50
Electricity Consumption (MWh per capita and % from renewables1)
Figure 5.4
Iceland is the largest producer of renewable power per capita in the world
Sources: World Bank; Iceland Chamber of Commerce
1 World Bank only publishes distribution of electricity by output, not consumption, so the distributionbetween renewables and non-renewables might be slightly inaccurate
20
15
45
0
10
30
5
55
40
25
35
50
KOR
USA
0%
63%
100%
KWT
ISL
FIN
0%
QAT
0% 32%
LUX
0%
SWE
CAN
13% 0%
BHR
ARE
2%
BRN
NO
R
63%
14%
AUS
0%
SAU
98%
44%
Renewable resources Non-renewable resources
Iceland Chamber of Commerce | 51
Potential Increase in Profitability by Storing Data in Iceland (Profits; illustrative)
Figure 5.5
Favorable climate and affordable, renewable energymakes Iceland an attractive location for data centers
Source: Iceland Chamber of Commerce
Data Storedin Europe
Cooler Climate
Lower Electricity
Prices
IncreasedSales due to
Green Energy
Data Storedin Iceland
Iceland Chamber of Commerce | 52
Seafood Industry (Investment and Productivity)
Figure 5.6
Iceland’s seafood industry has seen productivity gains amidst erratic business environment
Sources: Statistics Iceland; Iceland Chamber of Commerce
0
20
40
60
80
100
120
140
160
180
200
0
5
10
15
20
25
30
35
40
45
50
55
2001
1998
2011
2013
1997
1999
2000
2002
2006
2003
2004
2005
2007
2008
2009
2010
2012
2017
2014
2018
2015
2016
Labour productivity (l. axis, index 1997=100)1 Investment (r. axis b. ISK at 2018 prices)
1 Working hours and thus productivity has a break in series in 2008
Iceland Chamber of Commerce | 53
Aquaculture Production (Thousand tons)
Figure 5.7
Aquaculture is expanding fast, salmon production in particular
Sources: Statistics Iceland; Iceland Chamber of Commerce
1 Projection of total production based on growth in January-May 2019
25
15
30
0
5
10
20
2009 20122010 2019120142008 2011
5
2013 2015 2016
21
2017 2018
5 557 7
8 8
15
19
26
Salmon Trout and arctic char Other
Iceland Chamber of Commerce | 54
INTERNATIONALSECTOR6
Iceland Chamber of Commerce | 55
Export Requirements Along a 3% Economic Growth Path (Bn. ISK; Illustrative2)
Figure 6.1
New exports in knowledge based goods and services are needed to support a balanced long-term growth trajectory1
Sources: McKinsey & Company, Statistics Iceland, Central Bank of Iceland, Iceland Chamber of Commerce
1 McKinsey assumed a goal of 4% growth p.a. but the Chamber believes a 3% growth rate is more realistic over the long run. Tourism exports are assumed to grow at a 4% rate until 2022. 2 Real ISK.
500
250
0
750
1,000
1,250
1,500
1,750
2,000
2,250
2017 2022 2027 2032 2037
New Exports
Other GoodsOther Services
Tourism
Energy-Intensive Industry
Fisheries
Iceland Chamber of Commerce | 56
Government Contributions to R&D Grants (Real prices, Index 2004 = 100)
Figure 6.2
Government grants towards R&D have increased manyfold in the last 15 years
Sources: The Icelandic Centre for Research
214 224
613
122 117
307
0
100
200
300
400
500
600
700
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
376
204
Icelandic Research FundTechnology Development Fund
Iceland Chamber of Commerce | 57
R&D Expenditure by Sector (PPP Million USD)
Figure 6.3
Investment in R&D has been steadily increasing over the last few years
Sources: Statistics Iceland, OECD, Iceland Chamber of Commerce
91 96 104 115 126
136178
234241
257
2015
1717
20162013 2014
1817 17
2017
243
292
355373
400
Corporations Other public institutions Universities
Iceland Chamber of Commerce | 58
Government R&D Tax Credits and/or Rebates (Percent by bracket, million USD)
Figure 6.4
While Iceland has been improving incentives to conduct R&D it still trails a number of countries in terms of tax credits
Sources: Statistics Iceland, OECD, Iceland Chamber of Commerce
Britain
43,5
Iceland
Australia
Austria
Ireland
France
Canada
Netherlands
Portugal
33,0
Chile
Norway
Denmark
37,5
30,0
20,0
35,0
32,0
14,0
20,0
32,5
35,0
22,0
4,4
3,8
3,3
3,0
2,0
1,5
1,4
1,0
0,6
0,5
0,4
0,2
CountryRebate Percentage Absolute Cap1
Million USDTax Rebate10m USD Investment2
71,0
5,0
1,7
3,0
1,2
0,9
Lower Higher
No Cap
No Cap
No Cap
No Cap
No Cap
No Cap
1 Australia: Higher bracket only available to companies whose revenue does not exceed 13,5m USD, lower bracket only available to conmpanies whose revenue does not exceed 14,2m USD; France: Higher bracket cap is 115,8m USD, no cap on lower bracket; Netherlands: Higher bracket cap is 0,4m USD, no cap on lower bracket; Britain: Higher cap only available to companies who do not employ more than 500 people.; Norway: Higher bracket only available to SME‘s 2 The tax rebate/credit is calculated based on a gross investment in R&D of 10m USD.
Iceland Chamber of Commerce | 59
Figure 2.20
2015 was the breakout year for the VC industry in Iceland
Source: Iceland Chamber of Commerce
1997
New Business Venture FundQuasi-Public fund56m USD
Frumtak IPrivate Fund52m USD
2008 2015
Frumtak IIPrivate Fund38m USD
BrunnurPrivate Fund30m USD
Eyrir SprotarPrivate Fund34m USD
2017
Crowberry CapitalPrivate Fund37m USD
Timeline of Iceland Based Venture Capital Funds (Year, Type of ownership, USD)
Iceland Chamber of Commerce | 60
STEM Degree Graduates as Percantage of Total Number of Graduates (Percent)
Figure 6.6
Iceland has a relatively low proportion of students graduating with STEM degrees
Sources: INSEAD – Global Innovation Index 2018, Iceland Chamber of Commerce
30 30 30 29 2827 26 26 26 25 25 25 24 24 24 23 23 23 23
21 21 21 21 2018 17
16 1614 14
Lithuania
Sweden
Britain
Austria
Greece
Romania
Finland
Portugal
France
Estonia
Slovenia
Italy
Croatia
Cyprus
Czech Republic
IrelandSw
itzerlandSpain
Iceland
Bulgaria
Hungary
Poland
SlovakiaN
orway
Denm
arkLatvia
Malta
Belgium
Netherlands
Luxembuorg
European Countries Nordic countries Iceland
Iceland Chamber of Commerce | 61
FUTUREPROSPECTS7
Iceland Chamber of Commerce | 62
The Iceland Growth Forum had 37 reform proposals to support a long term sustainable growth trajectory
Figure 7.1
Source: Iceland Growth Forum presentation
“Let‘s look outside… And see the big picture“
Iceland Chamber of Commerce | 63
The Four Focus Lenses of Disruptive Trends
Figure 7.2
To capture the disruptive trends that are shaping theworld, the Chamber will operate under four focus lenses
Source: Iceland Chamber of Commerce
Support and grow knowledge driven export sectors of the Icelandic economy
Ensuring that all generation’s talents match the need of the society
• Determining how business leaders can navigate through present challenges
Maximize value creation of Icelandic resource industries
Protect nature with focus on productivity and sustainability
• Leverage Iceland’s unique situations to fight climate change
Boost global position of Iceland as the country to base and do business in
• Safeguarding Iceland’s position in the EEA and openness to trade
• Focus on business development in new markets
ExamplesLenses
Embrace technological changes to drive productivity improvements across sectors
Improve services and achieve cost efficiency through digitization
Use big data insights to connect with customers and transform operations
Digitisation
Regeneration
Environmental Sustainability
Global Connections
Iceland Chamber of Commerce | 64
Infrastructure Stock and Investment (Broadly defined1)
Figure 7.3
More investment in infrastructure is required to soon reach previous infrastructure levels
Sources: Statistics Iceland; Iceland Chamber of Commerce
1 Infrastructure is the total amount of capital stock and capital formation(investment) in housing and other buildings, roads, bridges, sewers and business sector construction. 2 See 3 for investment. Population based on Statistics Iceland projections. 3 Assuming constant investment level in real terms 2019 onwards, 0% GDP growth in 2019 and 2,5% growth 2020 onwards
0
10
20
30
0%
5%
10%
15%
20%
25%
30%
35%
40%20
02
2050
1992
2008
1990
1994
2006
2000
1996
2044
2004
25.4
2010
2048
2012
2014
1998
2018
23.0
2046
2020
25.4
2022
2024
2026
2028
2030
2032
2038
2034
2036
2040
2042
2016
Infrastructure per capita (m.ISK at 2018 prices, l.axis)2 Infrastructure investment/GDP (r. axis)3
Projection
Iceland Chamber of Commerce | 65
Capital Stock in Roads and Bridges (Million ISK per car1)
Figure 7.4
Lack of investment on top of traffic increasing by half in less than a decade indicates that investment needs to pick-up
Sources: Statistics Iceland; Iceland Chamber of Commerce
1 ICoC projection for 2018 based on Althingi‘s budget. Number of cars growth projected the same as GDP growth in 2017-18
1994
1992
0.0
1996
1990
2000
2008
2010
2014
2012
2016
2018
20061.3
1.5
1.4
2004
1.6
2002
1.7
1998
-13%
Capital stock in roads per car 1990-2017 average
Iceland Chamber of Commerce | 66
England-France70km2,000 MW
SwePol245km600 MW
Konti-Skan 1&2149 km550 MW
Interconnectors in Northern Europe (Length and capacity)
Figure 7.5
An interconnector from Iceland to the UK would be one of the longest in Europe and requires significant investment
Sources: Kvika banki; GAM Management; Iceland Chamber of Commerce
Fenno-Skan200 km800 MW
BritNed260km1,000 MW
NorNed580km700 MW
Baltic Cable262 km600 MW
Iceland-UK~1,000 km800-1,200 MW
Iceland Chamber of Commerce | 67
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