Lifting capital controls underpins Iceland’s growth

Subject

Iceland‘s macroeconomic outlook.

Significance

Iceland at the turn of the year took several steps towards lifting its capital controls on households and businesses. The authorities had worried that this would create an outflow of capital, destabilising the economy through a weakened krona and rising inflation. However, positive economic conditions have reversed the problem at least in the short run, with the main worries being an even stronger krona which could threaten export and tourism industries.

Impacts

• High expected GDP growth and interest rates might be tempting for foreign investors looking for short-term gains.
• Fresh elections are possible if the Independence Party fails to form a government.
• The largest challenge for Iceland will be to find long-term economic balance as a small economy outside the EU.