Iceland economic recovery slowly gaining momentum

steingrimurFirst quarter results from Statistics Iceland indicate that the economy has returned to growth, but the year-on-year figure still shows recession.

Iceland’s GDP rose by o.6 percent in the first three months of 2010 – but measured over the 12 months March to March, it was a drwo of 6.8 percent.

Reuters reports that fourth quarter GDP in 2009 was revised to 0.7 percent increase after an initially reported 3.3 percent. But fourth quarter 2008 to the same time 2009 saw a GDP drop of 7.9 percent.

“The picture has been that of an improvement quarter-on-quarter … while the year-on-year numbers have been lagging other countries,” Swedish analyst Mats Olausson told Reuters.

The 12 month figures are a reminder of how deep and severe Iceland’s recession has been; but the two previous quarters’ results show a welcome return to growth – albeit slow.

Iceland’s positive trade balance, decreased inflation and interest rates, IMF-bolstered foreign currency reserves and improving consumer confidence are all driving the recovery which is already beginning to see unemployment fall. The rapid increase in consumer prices and the widespread wage freezes or reductions are holding back growth, however.

The recent biannual OECD economic outlook for Iceland said that the country has made considerable progress in reducing economic imbalances, providing a strong basis for recovery which should see it return to growth of 2.3 percent next year.

Minister for Finance Steingrimur J. Sigfusson told Reporters last month that he expects the economy to pick up considerably in the second half of this year and for the whole year figures to reveal a GDP drop lower than 2.5 percent.

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