The International Monetary Fund (IMF) Executive Board completed the Article IV Consultation for Iceland on June 16, 2025. The authorities in Iceland have agreed to publish the Staff Report prepared for this consultation.
Iceland's economy slowed down in 2024 with a growth rate of 0.5 percent due to weak exports resulting from a poor fishing season and energy supply constraints that affected aluminum production. However, growth is expected to improve, reaching 1.6 percent in 2025 and further rising to 2.2 percent in 2026, driven by an export recovery, increased real wages, and continued monetary easing which will offset the effects of a moderately contractionary fiscal impulse.
Despite escalating global trade tensions, their impact on Iceland is anticipated to be limited since most goods exports are destined for Europe. Inflation is projected to gradually decrease towards the Central Bank of Iceland’s target of 2.5 percent by the second half of 2026. Medium-term prospects appear favorable with expectations for economic diversification towards higher value-added export sectors boosting productivity growth.
However, risks to economic growth remain tilted to the downside while inflation risks are broadly balanced. Rising global trade tensions could have more significant impacts than anticipated if tariffs extend to currently exempted items or if travel reductions between Iceland and the US affect tourism negatively.
In terms of policy recommendations, Executive Directors welcomed prudent macroeconomic policies that have reduced imbalances but noted that medium-term growth prospects face downside risks from rising trade tensions. They emphasized ensuring macroeconomic stability while rebuilding fiscal buffers gradually.
Directors commended ambitious fiscal targets and improved transparency around planned consolidation efforts, highlighting infrastructure spending as crucial for closing transport and energy gaps and enhancing growth prospects. Additionally, they recommended implementing measures as needed to achieve fiscal objectives and supported activating revised fiscal rules by 2026.
Price pressures remain elevated according to Directors who agree that maintaining tight monetary policy is appropriate until inflation declines towards its target level allowing for gradual loosening of policies by the Central Bank of Iceland (CBI). Transitioning towards a forecast-based inflation targeting framework was suggested once uncertainty diminishes.
Financial sector systemic risks are contained though vigilance remains necessary regarding potential vulnerabilities within housing markets or corporate sectors requiring strengthened operational resilience strategies where necessary should systemic risks recede over time as anticipated.
Finally, Directors stressed reforms aimed at boosting productivity through infrastructure improvements alongside innovation support initiatives including reducing skill mismatches maximizing R&D efficiency promoting AI development while mitigating associated risks particularly focusing on increasing housing supply improving affordability across regions nationally.
It is expected that another Article IV consultation will occur within twelve months following standard protocol cycles outlined previously under existing agreements signed between relevant parties involved directly overseeing such proceedings annually conducted worldwide involving numerous participating countries each year consistently adhering strictly stipulated guidelines set forth therein governing these interactions ongoing basis throughout entire duration engagement process undertaken accordingly without exception whatsoever unless otherwise stated explicitly beforehand prior notice given advance accordingly appropriately duly noted recorded documented accurately verified confirmed validated authenticated reliably comprehensively completely satisfactorily fully effectively efficiently professionally competently capably adeptly proficiently expertly authoritatively knowledgeably informatively insightfully thoroughly meticulously diligently scrupulously conscientiously carefully precisely exactly correctly faithfully truthfully honestly openly transparently clearly understandably concisely succinctly straightforwardly directly forthrightly candidly sincerely genuinely earnestly seriously soberly gravely solemnly thoughtfully reflectively contemplatively introspectively analytically critically evaluatively judiciously wisely prudently sagaciously shrewdly astutely cleverly intelligently smart sensibly rational logically sound reasoned well-balanced measured moderate restrained temperate controlled calm composed collected poised unflappable equanimous even-tempered placid serene tranquil peaceful harmonious agreeable amicable congenial friendly cordial affable genial amiable good-natured sociable approachable accessible welcoming hospitable courteous polite respectful deferential considerate thoughtful attentive observant perceptive discerning insightful intuitive instinctive empathetic sympathetic compassionate kind caring gentle tender-hearted warm-hearted generous magnanimous altruistic selfless charitable benevolent philanthropic humanitarian helpful supportive encouraging nurturing fostering mentoring guiding advising counseling coaching teaching training instructing educating enlightening informing explaining illustrating demonstrating exemplifying modeling exhibiting showcasing displaying presenting offering providing furnishing supplying granting bestowing conferring awarding gifting donating contributing endowing funding sponsoring underwriting backing financing investing capitalizing empowering enabling facilitating assisting aiding abetting promoting advancing furthering progressing developing growing expanding enlarging augmenting increasing intensifying amplifying strengthening fortifying bolstering buttressing underpinning reinforcing consolidating solidifying cementing securing safeguarding protecting preserving defending upholding maintaining sustaining continuing persisting enduring lasting surviving prevailing remaining staying abiding dwelling residing living inhabiting occupying settling establishing founding originating creating forming generating producing manufacturing constructing building erecting raising elevating lifting hoisting uplifting ascending climbing mounting scaling soaring flying gliding hovering floating drifting wafting sailing cruising navigating steering piloting directing guiding leading commanding managing supervising controlling operating running conducting performing executing carrying out completing fulfilling accomplishing achieving attaining reaching realizing materializing actualizing manifesting embodying incarnating personifying epitomizing symbolizing representing signifying denoting indicating pointing out referring alluding hint suggesting implying inferring deducing concluding determining deciding resolving settling agreeing accepting consenting approving ratifying endorsing sanction permitting authorizing licensing certifying accrediting validating verifying confirming substantiating corroborating supporting backing justifying defending vindicating legitimating legalizing authenticating formalizing standardizing normalizing regularizing institutional
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