The Nordic bank predicts that growth in the Icelandic economy will be negligible this year and next, but that the economy can expect to expand significantly in 2010 (3.8 percent) and 2011 (4.6 percent).
The two year cooling down period is contributed to the high price of oil and commodities, the global credit crunch and Iceland’s recent completion of large-scale industrial projects, as well as the recent cut in fishing quotas.
Inflation and slowly-increasing levels of unemployment will force down consumer growth. But cooling consumer demand and decreasing house prices will combine to allow the Central Bank to quickly lower the base rate.
Glitnir believes that the current 15.5 percent benchmark interest rate could be as low as eight percent by the end of next year, and that inflation will fall to the Central Bank’s target of 2.5 percent by mid 2009.
The full economic report is available at www.glitnirbank.com