Icelandic Economy Q1 2023

The Iceland Chamber of Commerce has published a new quarterly edition of The Icelandic Economy, a report giving a unique and comprehensive overview of the economy.

The Iceland Chamber of Commerce has published reports on the Icelandic economy since 2008. We hope that these reports provide impartial and accessible information about the current and future outlook of the Icelandic economy, not only for the curious ones but especially for those who intend to do business in Iceland.

Click here to read our updated report


Economic Developments

The Icelandic economy has recovered after a sharp contraction in 2020, with current GDP levels exceeding pre-pandemic levels. Despite a bleak global economic outlook, growth is expected to be 5.6% in 2022, accelerated by tourism growth and robust private consumption.

Price pressures are currently widespread, with annual inflation coming in at 9.6% in December 2022, with gradual easing in the coming months. In response, the CBI has tightened monetary policy and raised the key interest rate, which currently stands at 6%.

Despite rising prices and interest rates, households and firms remain resilient as high demand and low non-performing loan ratios show. The third quarter of 2022 marked the first quarter of last year with a current accounts surplus, which was due to a hefty surplus in services trade. On the other hand a deficit in goods trade and the primary income balance offset the current account. Positive capital inflows due to registered new investment and NIIP indicate that the position still remains strong, but increased foreign investments make the NIIP more susceptible to price movements.

The share of firms reporting staffing shortages is high, as is reflected in low unemployment rate and rising wages. Given the circumstances, the finalisation of collective wage bargaining agreements for half of the labour eased the current situation.

The second tranche of Iceland’s market upgrade to FTSE Russel’s Secondary Emerging Market Status took place on December 16th. The upgrade will help facilitate capital raising opportunities and further spark interest of foreign investors.

The size of the financial system measured 410% of GDP in the first three quarters of 2022, where pension funds’ assets account for 42% and banks for almost 33%. Limited, and declining, business and households’ insolvencies suggest that the financial system is not only sound, but also further improving. This is further cemented in the banks’ declining non-performing loan ratio, which is also historically low.

Iceland at Glance

Iceland ranks 16th out of 63 countries in IMD’s 2022 competitiveness report, whereas infrastructure and business efficiency rank 8th and 4th, respectively. Also, Iceland ranks 3rd in IMD’s 2022 World Talent Ranking. Improvements are due to progress in Investment & Development and Appeal. In this regard, Iceland punches well above its weight in competitiveness. The country also ranks highly on several other international indicators, such as gender equality, global peace, and social progress.

Industrial Framework

Iceland is a parliamentary republic with a large public sector. The Central Bank targets inflation and the financial system is characterized by prominent pension funds and banks.

The Chamber offers a presentation based on the report. For further information, please contact our Economists, Elísa Arna Hilmarsdóttir ( and Gunnar Úlfarsson ( 

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