A recession is likely in 2019 due to declining tourist arrivals. Iceland's second-largest airline WOW Air's bankruptcy caused a supply shock to tourism, the country's largest export. We project real GDP will decline by 1.5% in 2019, but return to growth thereafter. We believe the recently concluded wage negotiations, which agreed a modest wage increase for a large share of private sector employees, should foster stability. The current account is turning to deficit, but fiscal and external buffers remain. Iceland's net general government debt is now below 30% of GDP, reflecting significant debt reduction in recent years. Iceland's current account balance will swing to deficit this year, but the country remains a net external creditor. We continue to view monetary
