Iceland: 2021 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Iceland

IMF Staff Country Reports, June 8, 2021

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Canonical URL: Iceland: 2021 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Iceland

Real GDP plummeted by 6.6 percent in 2020 due to a sharp tourism contraction and containment measures.
A modest recovery is expected to take hold in 2021.
Recovery prospects in the tourism sector hinge on control of the epidemic and progress in global and domestic vaccine distribution, creating a challenging outlook with the risk of deep medium-term scarring.

Policy buffers accumulated over the last decade provided space for a large fiscal support and accommodated substantial automatic stabilizers.
Fiscal policy should continue to support the economy for now.
Additional stimulus is planned in 2021 to address still large slack in the economy, mitigate scarring, and provide confidence in the event of downside risks.
Medium-term policies should ensure that public debt is firmly on a downward path, while limiting the drag on growth.

Tourism: central to the recovery; outcomes depend on epidemic control and vaccine rollout.
Health: pandemic containment and vaccination progress are primary determinants of economic trajectories.
Monetary and financial sectors: implications for currency markets, financial markets, and monetary policy effort are highlighted by the economic shock.
Statistics and fiscal data: the report includes economic and financial statistics and government finance statistics to inform policy.