World financial instability seen as danger to Iceland recovery

According to the latest and final report by the IMF on Iceland’s economic recovery, volcanic eruptions and continued financial instability overseas both have potential to damage Iceland’s economic recovery, which the report otherwise praises.

The IMF report was prepared and published in connection to the sixth and final evaluation of the fund’s Iceland recovery package.

According to the report, significant strides forward have been taken, which have brought the rate of unemployment down, rationalised government accounts and seen the banking system recapitalised, for the most part. The IMF welcomed the recent Central Bank of Iceland decision to raise interest rates, the report added.

The IMF predicts 2.5 percent economic growth for Iceland this year, and 3.1 percent next year, reported.

Delays to investment projects could dampen that predicted growth though; and the report warns that the Icelandic government’s unclear direction in matters of heavy industry is not likely to build investor confidence.

Other potential stumbling blocks the report flags up include that it is still not sure how much of the Icesave debt will fall on the taxpayer, the ongoing international financial turmoil, and how easily authorities are able to remove the currency controls when the time comes.

The volcanic eruptions in Eyjafjallajokull and Grimsvotn did not get past the report’s authors either, who write that the impacts of volcanoes on the Icelandic economy cannot be overlooked. The most recent eruptions did not have a serious impact on the country’s economic recovery; but that may not always be the case. Natural disasters of every kind often prove expensive for national economies around the world.