Economy of Iceland

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Iceland
Flag of Iceland.svg
World economic rank 106th (nominal) (2017)
currency Icelandic krona (ISK)
Conversion rate 1 ISK = 0.0067 EUR
(Feb. 28, 2015)
Key figures
Gross domestic
product (GDP) 		$ 24.85 billion (nominal) (2017)
$ 17.73 billion (PPP) (2017)
GDP per capita $ 70,332 (nominal) (2017)
$ 51,832 (PPP) (2017)
GDP by economic sector Agriculture : 6.3% (2008)
Industry : 27% (2008)
Services : 66.7% (2008)
growth   5.5% (2017)
inflation rate 1.6% (May 2015)
Employed approx. 169,500 (2nd quarter 2010)
Activity rate 53.36% (2010)
Unemployed approx. 16,200 (2nd quarter 2010)
Unemployment rate 2.7% (2017)
Foreign trade
export € 2.91 billion (2009)
Export goods Machines, food
Export partner Netherlands : 36.5% (2010)
Germany : 13.1% (2010)
UK : 10.5% (2010)
import € 2.58 billion (2009)
Import goods Machines, consumer goods, fuels & lubricants
Import partner Norway : 9.46% (2010)
Netherlands : 8.6% (2010)
USA : 8.19% (2010)
Foreign trade balance € 324 million (2009)
public finances
Public debt 47.4% of GDP (2017)
Government revenue 43.4% of GDP (2017)
Government spending 41.0% of GDP (2017)
Budget balance −2.4% of GDP (2017)

The economy of Iceland is heavily dependent on fishing and related industries, which are responsible for 60% of exports. The state of the economic situation in the country is strongly influenced by the market for maritime products.

In the Global Competitiveness Index , which measures a country's competitiveness, Iceland ranks 24th out of 137 countries (as of 2018). In 2018, the country was ranked 11th out of 180 countries in the index for economic freedom .

Imports and exports

With 42%, fishery products contribute significantly to Iceland's exports. Other important products include aluminum , ferrosilicon , fishing and fish processing equipment, and wool products . The imports and exports each contribute to a third of the gross domestic product . Most of the exports go to the EU and EFTA countries , the USA and Japan .

Iceland's relatively liberal trade policy was significantly strengthened by joining the European Economic Area in 1993 and by the agreements of the Uruguay Round , which brought improved market access for Icelandic products, especially fishery products. The agricultural sector, however, remains heavily subsidized and isolated; some import duties are up to 700%.

inflation

The Icelandic economy is highly vulnerable to high inflation, especially due to its high dependency on exports. During the 1970s , the energy crisis hit Iceland hard. Inflation rose to 43% in 1974 and 59% in 1980, recovered to 15% by 1987, but rose again to 30% in 1988. Since then, the inflation rate has fallen dramatically (around 1.5% in 1993–1994, 1.7% in 1994–1995).

In the course of the international financial crisis from 2007 and the subsequent national financial crisis , inflation rose steadily. At the beginning of December 2008 it was 17%, but was reduced again in the following years.

The current government, supported by the central bank, is pursuing tough austerity policies in financial policy. The aim is to achieve price stability with an annual inflation rate of 2.5%.

growth

Over the past decade, the Icelandic economy has slowly diversified, mainly in the manufacturing and service sectors. New companies in software , biotechnology and financial services have emerged. Sales in the tourism business are also growing strongly, mainly in the areas of ecotourism and whale watching . The annual economic growth was only slight in the years 2000 to 2002.

Economic alliances

Hús Verslunarinnar, Reykjavík

Iceland has been a full member of EFTA since 1970 and already signed a free trade agreement with the EU in 1973 . Since the Agreement on the European Economic Area came into force on January 1, 1994, goods, workers, capital and services have been able to move almost unrestrictedly between Iceland, Norway and the member states of the EU.

On July 16, 2009, after a lively discussion, the Althing approved an application to join the EU, which the Sigurddottir government resolved on the same day and submitted to the EU on the following day.

Economic sectors and branches

Resources and energy

Iceland has few mineral resources. Sulfur was mined in the past and, until a few years ago, kieselguhr from Lake Mývatn . The plant was closed for environmental reasons. Cement is one of the few natural resources that is processed directly in Iceland. Concrete is used as a building material, also for private houses.

The abundant hydropower and geothermal energy sources are being used more and more. Up to now, almost 90% of the population have geothermal heating. The hydropower is converted into electrical energy by a large number of hydropower plants. By far the largest is the Kárahnjúkavirkjun (690 MW), which was built in the north of Vatnajökull . Other larger power plants are Búrfell (270 MW), Hrauneyjarfoss (210 MW), Sigalda (150 MW), Blöndulón (150 MW) and others. Thought has been given to exporting electricity to continental Europe via an undersea cable. Due to the surplus of electrical energy, energy-intensive industries such as aluminum and ferrosilicon factories are also being built, including by foreign investors.

Aluminum manufacturing

The work Fjarðarál company Alcoa in Reyðarfjörður

The low-cost energy due to natural sources such as hydropower and geothermal energy resulted in aluminum works being built in Iceland, because aluminum is produced using electrolysis and requires huge amounts of electricity. The raw material for this - bauxite - is transported from Australia to Iceland, among other places, in order to manufacture aluminum cheaply from it. There are already several aluminum plants in Iceland:

The smelters are also planning to further expand their production capacity over the next few years. The large aluminum mills contribute to Iceland's economic performance, have created hundreds of jobs in Iceland and also attract a large number of foreign workers.

transport

Much of the transport in Iceland is made on the national road network that connects most of the inhabited places. State-organized road construction has been practiced since the beginning of the 19th century and has been promoted on a large scale since the 1980s . The main road, Hringvegur, is a large ring road that circles almost all of Iceland along the coast, with the exception of the Westfjords . Most of Iceland's more densely populated cities are located along these roads. Other smaller roads connect small towns and settlements inland, and some slopes also lead through the highlands in summer . In order to shorten long journey times, more tunnels are slowly being built. The Hvalfjarðargöng shortens the route around Hvalfjörður by around 50 km.

Scheduled flights are also operated from Iceland to Europe and North America. There are two national airlines: Icelandair (also one of the largest employers in the country) and WOW air . The domestic flights between the major cities are operated by Air Iceland Connect and are important for getting around Iceland quickly.

Transport by ship is used almost exclusively for the transport of goods, although here, too, there are signs of a shift to the roads. The main ferry connection is between the mainland of Iceland from Landeyjahöfn and Vestmannaeyjar (Westman Islands) and takes 30 minutes. Another ferry connection is between Stykkishólmur and Brjánslækur in the Westfjords.

There is currently no railroad in Iceland , although a rail link between the international airport in Keflavík and Reykjavík is always being discussed.

Financial services

Banks

Iceland currently has three major banking companies - Íslandsbanki , Landsbanki and Arion Bank . The assets of these three big banks correspond to about ten times the annual Icelandic gross national product . In comparison, at the end of September 2008 the debt burden of the three banks was nine times the total Icelandic gross national product. On September 29, 2008, the third largest bank, Glitnir, was nationalized; the government took over 75 percent of all shares. On October 6, 2008, Prime Minister Geir Haarde announced an emergency law to nationalize the three major banking companies.

The company Sparisjóðabanki Íslands ( Icebank ) is an umbrella company for 29 local savings banks. All of these companies are listed on the Icelandic Stock Exchange ( Kauphöll Íslands ).

SPRON, the Icelandic savings bank

The banks are in competition with each other and operate branches and ATMs across the country. Each of the three big banks manages around a quarter of the country's savings deposits, the last quarter is managed by the savings banks and the Postgiro ​​system. Due to the high inflation, a large part of the money is invested as time deposits and not as sight deposits . Since the liberalization of interest rate policy in 1986, competition between banks for customers has intensified dramatically.

All four banks have offices in major US and European financial centers, but no foreign bank has yet attempted to break into the Icelandic market.

To prevent a national bankruptcy, the Icelandic government took control of all three major banks in October 2008 and passed emergency laws. However, on October 15, 2008, the government was unable to comply with a request for payment of 750 million euros, which resulted in the island state being declared insolvent.

Stock market

Due to high inflation, traditional dependence on fish production and the nationalization of the banking sector, the equity market in Iceland has been slow to develop. The Icelandic Stock Exchange Kauphöll Íslands ( ICEX ) was founded in 1985. Trading in Icelandic bonds began in 1986 and stock trading in 1990. All trading in stocks , bonds and mutual funds is done on the stock exchange.

ICEX has been using an electronic trading system since it was founded. SAXESS , a trading system of the NOREX Alliance, has been in use since 2000 . Two stock markets are currently listed on the ICEX. The main market is bigger and better known. The alternative market is a less regulated over-the-counter market. Many Icelandic companies from different sectors are listed on the stock exchange. However, due to the limited size of the Icelandic market, comparatively little business is done.

The most important stock index is the ICEX 15 .

Other financial markets

Traditionally, investors have been reluctant to buy Icelandic bonds due to high inflation and the high volatility of the Icelandic krona . However, there were bonds issued by the government. The bond market has boomed over the past few years, mainly because mortgages have been converted into bonds.

The prerequisites for a market for investment funds on the ICEX would exist, but no such bond has yet been offered. A small market for derivatives existed until 1999, but was closed due to low turnover.

literature

  • Carsten Wilms : Iceland in: Handbook of Foreign Trade Policies: States and Organizations. Edited by Michael Neu, Wolfgang Gieler and Jürgen Bellers. Part 2. Lit Verlag, Münster 2003 (= Politics. Research and Science Volume 8), pp. 693–696.

Individual evidence

  1. ↑ Exchange rates for the Icelandic krona. Accessed October 13, 2010
  2. ↑ a b c d e [1] Retrieved July 6, 2018
  3. ↑ Eurostat - Gross Value Added in Agriculture Accessed on October 13, 2010
  4. ↑ Eurostat - Gross Value Added Industry. Accessed 13 October 2010
  5. ↑ Eurostat - Gross Value Added in Services Accessed on October 13, 2010
  6. ↑ http://de.inflation.eu/inflationsrates/island/inflation-island.aspx
  7. ↑ a b c Statistics Iceland - Labor Market.Retrieved October 13, 2010
  8. ↑ a b c Eurostat - Foreign trade by declaring country.Retrieved on October 13, 2010
  9. ↑ Statistics Iceland - Exports by broad Economic Categories.Retrieved October 13, 2010
  10. ↑ Statistics Iceland - Exports by Country.Retrieved October 13, 2010
  11. ↑ Statistics Iceland - Imports by broad Economic Category.Retrieved October 13, 2010
  12. ↑ Statistics Iceland - Import in Goods.Retrieved October 13, 2010
  13. ↑ Eurostat - Government debt. Accessed 13 October 2010
  14. ↑ Eurostat - total government revenue. Accessed 13 October 2010
  15. ↑ Eurostat - General government expenditure. Accessed 13 October 2010
  16. ↑ Country / Economy Profiles . In: Global Competitiveness Index 2017-2018 . ( weforum.org [accessed December 4, 2017]).
  17. ↑ Country Rankings: World & Global Economy Rankings on Economic Freedom. Retrieved November 1, 2018 .
  18. ↑ Statistics Iceland ( Memento from November 13, 2010 in the Internet Archive )
  19. ↑ Inflation forecasts ( Memento of July 17, 2012 in the Internet Archive ) Inflation development on the website of the Central Bank of Iceland.
  20. ↑ Iceland is preparing to nationalize banks. In: FAZ.net. October 6, 2008, accessed October 14, 2017 .
  21. ↑ http://de.reuters.com/article/companiesNews/idDEBEE4980I120081009
  22. ↑ Financial Times: Economic Crisis ( Memento from October 19, 2008 in the Internet Archive )