Business Monitor International

Iceland Business Forecast Report

Published 24 September 2014

  • 23 pages
  • Instant access to your report online and PDF format through your account library
  • Includes 3 free updated quarterly reports
Iceland Business Forecast Report

Core Views

  • The debt relief plan, passed through parliament in late May 2014, will provide a short-term boost to consumption, at the expense of deteriorating external surpluses and reduced ability to meet external debt obligations.

  • The government's persistent inaction is undermining Iceland's short-term political stability, reflected in the downgrade to our proprietary political risk ratings this quarter.

  • We see no clear proposal for removal of restrictive capital controls, which will continue to hamper foreign investment into Iceland, capping long-term growth potential.

Major Forecast Changes

  • We have revised up our 2015 real GDP growth forecast this quarter, to 3.0% from 2.5% previously, as we believe the government's debt relief programme will provide further support to what was an already buoyant consumer story. However, we believe this stronger consumption story will undermine much of the recent improvement in the current account balance, while prolonging restrictive capital controls.

Key Risks To Outlook

  • The biggest risk to our forecast is policy trajectory, particularly in terms of how the current government chooses to deal with the country's failed banks. Any abrupt lowering of the controls would almost certainly lead to a rapid outflow of capital from the country, triggering a sell-off in the krona and a potential balance of payments crisis. We do not believe that this will happen over the next two years or so, but the potential fall-out is so large that the risk must be acknowledged.

Macroeconomic Forecasts (Iceland 2013-2016)
Indicator 2013 2014f 2015f 2016f
f = BMI forecast, Sources = National Sources/BMI
Nominal GDP, USDbn 14.6 16.5 16.5 16.4
Real GDP growth, % y-o-y 3.3 3.3 3.0 2.5
Consumer price inflation, % y-o-y, eop 3.7 3.0 3.0 2.5
Exchange rate ISK/USD, eop 115.18 118.00 122.60 127.71
Budget balance, % of GDP -2.1 0.5 -0.5

Table of Contents

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Populism Hurting Risk Profile
TABLE: Political Overview
Long-Term Political Outlook
Few Major Threats On the Horizon
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Strong Consumption To Undermine Stability
TABLE: Economic Activity
Balance Of Payments
Debt Relief To Prolong Capital Controls
TABLE: Balance Of Payments
Chapter 3: 10-Year Forecast
The Icelandic Economy To 2023
Settling Into A More Moderate Long-Term Growth Trend
TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: BMI Global Assumptions
Global Outlook
Emerging Market Deceleration
Table: Global Assumptions
Table: Develop ed States, Real GDP Gro wtH, %
Table: Em erging Markets , Real GDP Gro wth , %

The Iceland Business Forecast Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Iceland and is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Iceland's economic, political and financial prospects through end-2018, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Iceland's economic and industry growth through end-2018.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the business environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Iceland's country risks against regional peers using BMI's country comparative Risk Rankings system.
  • Evaluate external threats to doing business in Iceland, including currency volatility, the commodity price boom and protectionist policies.

The Iceland Business Forecast Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Business Environment and Key Sector Outlook.

Economic Outlook:

How will the Iceland economic policy-making and performance impact on corporate profitability over 2014-2018?

BMI provides our fully independent 5-year forecasts for Iceland through end-2018 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Iceland Business Forecast Report features BMI's forecasts with supporting analysis for 2014 through to end-2018, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:


  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Rankings system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector exposure).
  • Global Assumptions - forecasts for each year to end-2018 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Iceland and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Iceland, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Iceland over the next 5-years?

BMI's Iceland country Risk Rankings evaluate the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Iceland Market - Political Strengths, Weaknesses, Opportunities and Threats facing Iceland.
  • Political Stability and Risk Assessment - BMI's Risk Rankings assess explicit short- and long-term risks to political stability; latest ankings, rankings and trends for Iceland's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.

Key Benefits

  • Benchmark Iceland's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Business Environment

Business Environment Risk Rankings with SWOT Analysis - Business Environment Risk Rankings for Iceland, benchmarked against rankings for regional neighbours.

Country Competitiveness - Competitiveness of Iceland's business operating environment in supporting corporate growth and profitability, compared with regional neighbours.

Business Environment Contents

  • Domestic Environment - Transparency, cronyism and corruption; labour market flexibility; corporate tax burden; interest rate levels; sophistication of banking sector and stock market; levels of business confidence; infrastructure and IT.
  • Foreign Direct Investment - Analysis of foreign investment regime; foreign ownership laws; attractiveness of business environment to foreign investors.
  • Foreign Trade - Analysis of trading environment, government trade policy, liberalisation measures, tariffs and membership of trade areas.

Key Benefits

  • Assess your company's evolving exposure to country specific operational and business risks, using BMI's in-depth analysis of the legal and regulatory business environment.
  • Understand your market's comparative strengths and weaknesses in the key areas of commercial infrastructure and business institutions, using BMI's proprietary global Business Environment Risk Rankings.

Key Sector Outlook

Which industry sectors in Iceland will grow fastest, and where are the major investment opportunities in the market?

BMI's identifies investment opportunities in Iceland's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry with developments over 2009-2013, covering major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2014-2018, using BMI's proprietary industry modeling technique, which incorporates all key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across, and within, each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

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The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express