Iceland

This report does not constitute a rating action. Overview Institutional and economic profile Flexibility and performance profile Iceland?s institutional settings are strong and per capita income levels are high, but the economy remains concentrated on a few key sectors, including aluminum, fishing, and tourism. We project that Iceland will remain in a net external creditor position through 2027, while fiscal imbalances will remain contained, despite the widening budget deficit in 2024 on the back of additional spending due to seismic activity on the Reykjanes peninsula. -- After strong economic performance in recent years, real GDP contracted in the first half of 2024, due to weaker outturns in key fishing and tourism sectors, but we expect a rebound from 2025 with

...Iceland's ruling three-party coalition, led by prime minister Bjarni Benediktsson of the center-right Independence Party (IP), was dissolved in October 2024, and elections have been scheduled for Nov. 30. It appears that disagreements over policy direction, as well as infighting, led to the dissolution. Current opinion polls suggest that the opposition Social Democrats may lead the next government. We expect broad policy continuity, with an agenda focused on prudent public finances, regardless of the election outcome. Through 2024, Iceland has continued to be impacted by seismic activity on the Reykjanes peninsula. The 3,700 residents of the town of Grindavfk on the Reykjanes peninsula were evacuated in November 2023, just prior to a series of volcanic eruptions that threatened the town between November 2023 and March 2024. After a lull from April, seismic activity started again slightly farther away from the town in August, but activity has since subsided. The Reykjanes peninsula also...

Full Report