Economic risks of Iceland growth

The good weather spread around the Iceland economy, as the country is the best in the world for working women and economy is booming. After the economic crash in 2008- 2009, the gross domestic product (GDP) is expected to increase by 5% in 2016, which faster than any other rich economy. The ruling (conservative) Independence Party was rewarded for this and won 30% of the vote in October, which was more than any other party. But some economists and analysts fear that the economic stability of the country again grows on molten lava.

The biggest concern comes from the attitude towards foreign creditors. When the crisis hit, the country imposed capital controls, protecting the krona, not allowing the investors to withdraw capital from the country. The government recently began to ease the restrictions, and Icelanders may soon do not have to provide airline tickets to buy foreign currency for the holidays.

A group of foreign investors, however, blames Iceland that actually declares default on its debts. They have offshore, denominated in krona, assets worth about 10% of the GDP of Iceland. They have permission to convert foreign currency, but it happens with great loss.

Meanwhile, the government concluded its assets in accounts with low interest rates. The angry fund managers have filed a complaint with the Supervisory Board of the European Free Trade Area and started an information war. Mysterious ads appear in Reykjavik, accusing the central bank of corruption. If Iceland again repel foreign investors, it really would be bad news. It is open to international financial flows and is among the smallest countries in the world that do not have a fixed exchange rate. Much of corporate debt is denominated in foreign currency and devaluation will make repayment difficult.

Most investors, however, seem calm. They accept the fact that the government must ease the control slowly. They warn that the krona may be under pressure if the funds are withdrawn at once. For now and the European FTA clearly takes the side of Iceland.

The country enjoys and tourist boom. In 2017 are expected 2.25 million tourists, which is nearly seven times more than the local population. The influx has created many jobs and rush construction. The tourist boom, however, has its negative side. The very weight of foreign visitors expense the local currency. Against the dollar, it is the second best performing currency in the world last year. This apparently already causing damage to longstanding export industries.

Since the beginning of the year, exports of marine products decreased by over 10% compared to last year. Icelandic businesses at risk are not currently of the financial services sector and traditional industries.

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