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The Economy of Iceland

Icelandic Economy

Iceland's map

Economy - overview: Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system, including generous housing subsidies. Prior to the 2008 crisis, Iceland had achieved high growth, low unemployment, and a remarkably even distribution of income. Government economic priorities have included stabilizing the krona, reducing the current account deficit, containing inflation, restructuring the financial sector, and diversifying the economy. The economy depends heavily on the fishing industry, which provides 40% of export earnings and employs 5% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, with new developments in software production, biotechnology, and tourism. Abundant geothermal power has attracted substantial foreign investment in the aluminum and hydropower sectors and boosted economic growth, although the financial crisis has put several investment projects on hold. Much of Iceland's economic growth in recent years came as the result of a boom in domestic demand following the rapid expansion of the country's financial sector. Domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign-currency loans, following the privatization of the sector in the early 2000s. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country negotiated over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to guarantee foreign deposits in Icelandic banks. A protracted recession is expected in 2009 and 2010 with GDP likely to contract and unemployment likely to surpass 10%. The collapse of the financial system has led to a major shift in opinion in favor of joining the EU and adopting the euro. Previous opposition to this move stemmed from Icelanders' concern about losing control of their fishing resources. Iceland's coalition government collapsed in January 2009 following protests over growing joblessness and losses to personal savings.

GDP:

GDP - real growth rate: -3.5% (2008 est.) 4.9% (2007 est.) 4.4% (2006 est.)

GDP - per capita:

GDP - composition by sector: agriculture: 5% industry: 26.5% services: 68.5% (2008 est.)

Population below poverty line:

Household income or consumption by percentage share: lowest 10%: NA% highest 10%: NA%

Distribution of family income - Gini index: 25 (2005)

Inflation rate (consumer prices):

Labor force: 166,000 (2008 est.)

Labor force - by occupation: agriculture: 3% industry: 19% services: 78% (2007)

Unemployment rate: 1.6% note: this figure climbed to 9.4% as of February 2009 (2008 est.)

Budget: revenues: $7.582 billion expenditures: $7.159 billion (2008 est.)

Industries: fish processing; aluminum smelting, ferrosilicon production; geothermal power, tourism

Industrial production growth rate: 5.5% (2008 est.)

Electricity - production: 11.71 billion kWh (2007 est.)

Electricity - production by source:

Electricity - consumption: 9.312 billion kWh (2006 est.)

Electricity - exports: 0 kWh (2007 est.)

Electricity - imports: 0 kWh (2007 est.)

Oil - production: 0 bbl/day (2007 est.)

Oil - consumption: 21,120 bbl/day (2007 est.)

Oil - exports: 860.8 bbl/day (2005)

Oil - imports: 17,450 bbl/day (2005)

Oil - proved reserves: 0 bbl (1 January 2006 est.)

Natural gas - production: 0 cu m (2007 est.)

Natural gas - consumption: 0 cu m (2007 est.)

Natural gas - exports: 0 cu m (2007 est.)

Natural gas - imports: 0 cu m (2007 est.)

Natural gas - proved reserves: 0 cu m (1 January 2006 est.)

Agriculture - products: potatoes, green vegetables; mutton, dairy products; fish

Exports: $6.846 billion f.o.b. (2008 est.)

Exports - commodities: fish and fish products 70%, aluminum, animal products, ferrosilicon, diatomite

Exports - partners: Netherlands 21.3%, Germany 13.3%, UK 13.2%, Ireland 7.7%, US 7.3%, Spain 4.6%, Japan 4.3% (2007)

Imports: $6.543 billion f.o.b. (2008 est.)

Imports - commodities: machinery and equipment, petroleum products, foodstuffs, textiles

Imports - partners: US 13.7%, Germany 12.2%, Sweden 10.2%, Denmark 7.5%, Netherlands 5.7%, UK 5.4%, China 5.1%, Norway 4.6% (2007)

Debt - external: $3.073 billion (2002)

Economic aid - recipient:

Currency:

Currency code:

Exchange rates: Icelandic kronur (ISK) per US dollar - 85.619 (2008 est.), 63.391 (2007), 70.195 (2006), 62.982 (2005), 70.192 (2004)

Fiscal year: