“The good news is of course that the outlook seems slightly better than previously predicted and, of course, much better than the bleakest predictions,” Magnusson told Visir.is. When asked to explain what has changed, he said:
“There are many things looking better than first forecast. There has naturally been a significant contraction in private consumption, but it was no more than anticipated. Investment is in fact slightly higher than we had hoped for and exports have also been going better than expected.”
Recent figures suggest the contraction in Icelandic GDP will be seven percent this year. Previous predictions had, however, called for a nine to eleven percent cut, including predictions made by the Ministry of Finance and the IMF.
“This is very satisfying,” Magnusson said, pointing to the fact that the eurozone economies are looking at a four percent drop in GDP this year. “Although the recession is higher here, the difference is perhaps not as significant as people had feared.”
On the other hand, there is more uncertainty over the outlook for next year. But Magnusson says he hopes it will be possible to “hold back the sea” so that no further reduction in GDP will be recorded. “There will need to be growth somewhere to ensure national production doesn’t fall. People are especially looking towards investment in the private sector, but there could also be further increases in the export sector,” the minister said.
Last but not least, is the likely increase in demand for domestically produced goods and services instead of foreign ones. That, of course, depends to a certain extent on the exchange rate of the krona remaining low.
Magnusson says that it appears economic growth will be noticeable again in 2011 and 2012, but that it is too early to tell how much or how little.