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Iceland Economy
 
 
 

General

Iceland is the fourth most productive country in the world by nominal gross domestic product per capita (54,858 USD), and the fifth most productive by GDP at purchasing power parity (40,112 USD). Except for its abundant hydro-electric and geothermal power, Iceland lacks natural resources; historically its economy depended heavily on the fishing industry, which still provides almost 40% of export earnings and employs 8% of the work force. Although the Icelandic economy still relies heavily on fishing, its importance is diminishing as the travel industry and other service, technology and various other industries grow. Economic growth slowed from 2000 to 2002, but the economy expanded by 4.3% in 2003 and 6.2% in 2004. The unemployment rate of ~1.0% (2007 est.) is among the lowest in the European Economic Area (EEA).

Although Iceland is a very developed country, it is still one of the most newly-industrialised ones in Europe. Until the 20th century, it was probably the poorest country in Western Europe. The fast economic growth that it has experienced in the last decades is only recently allowing for upgrading of infrastructure such as transportation. The government coalition plans to continue its generally neo-liberal policies of reducing the budget and current account deficits, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, diversifying the economy and privatising state-owned industries. The government remains opposed to EU membership, primarily because of Icelanders' concern about losing control over their fishing resources.

Iceland's economy is highly export-driven. Marine products account for the majority of goods exports. Other important exports include aluminum, ferrosilicon alloys, machinery and electronic equipment for the fishing industry, software, and woolen goods. Most of Iceland's exports go to the European Union (EU) and European Free Trade Association (EFTA) countries, the United States, and Japan.

The main imports are machinery and equipment, petroleum products, foodstuffs and textiles. Cement is Iceland's most imported natural resource. The total 2005 value of imports was $4.582 billion. Iceland's primary import partner is Germany, with 12.6%, followed by the United States, Norway, and Denmark. Most agricultural products are subject to high tariffs; the import of some products, such as uncooked meat, is greatly restricted for phyto-sanitary reasons.

Iceland's economy has been diversifying into manufacturing and service industries in the last decade, including software production, biotechnology and financial services. The tourism sector is expanding, with the recent trends in eco-tourism and whale-watching. Iceland's agriculture industry consists mainly of potatoes, turnips, green vegetables (in greenhouses), mutton and dairy products. The financial centre is Borgartún in Reykjavik, hosting a large number of companies and three investment banks. Iceland's stock market, the Iceland Stock Exchange (ISE), was established in 1985.

Overview

Economy - overview:
Iceland's Scandinavian-type economy is basically capitalistic, yet with an extensive welfare system (including generous housing subsidies), low unemployment, and remarkably even distribution of income. In the absence of other natural resources (except for abundant geothermal power), the economy depends heavily on the fishing industry, which provides nearly 70% of export earnings and employs 6% of the work force. The economy 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. Substantial foreign investment in the aluminum and hydropower sectors has boosted economic growth which, nevertheless, has been volatile and characterised by recurrent imbalances. Government policies include reducing the current account deficit, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, and diversifying the economy. The government remains opposed to EU membership, primarily because of Icelanders' concern about losing control over their fishing resources. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, and new developments in software production, biotechnology, and financial services are taking place. The tourism sector is also expanding, with the recent trends in ecotourism and whale watching. The 2006 closure of the US military base at Keflavik had very little impact on the national economy; Iceland's low unemployment rate aided former base employees in finding alternate employment.

GDP (purchasing power parity):
$11.89 billion (2007 est.)

GDP (official exchange rate):
$19.52 billion (2007 est.)

GDP - real growth rate:
1.8% (2007 est.)

GDP - per capita (PPP):
$39,400 (2007 est.)

GDP - composition by sector:
agriculture: 5.3%
industry: 26.3%
services: 68.4% (2007 est.)


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