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The number of sunshine hours in Reykjavík,
Iceland's capital, was unusually low in June, at 121.7 hours, 90 hours less than the average for June over the last ten years.
Reykjavík has not seen such little sunshine since 1995, visir.is reports. The
economy also needs some sunshine.
Iceland’s economy is recovering at a moderate pace and is now more balanced than
before the crisis, although more remains to be done in private-sector
deleveraging, reducing non-performing loans and lowering external indebtedness,
according to the Organisation for Economic Cooperation and Development (OECD).
Economic growth should gain momentum in 2014, led by a large increase in
energy-intensive investment. To increase economic growth on a lasting basis and
better manage risks, capital controls need to be removed in an orderly fashion,
monetary and financial stability arrangements strengthened and the government
debt-to-GDP ratio reduced to more prudent levels.
Iceland's latest 5-year average real growth (%) is at -1.1%.
Growth was 1.6% in 2012 and is projected to be 1.9% this year, and in 2014
could rise to 2.6%, the OECD said in its recent biannual survey.
The economy is volatile due to Iceland‘s small size - - population is at about
320,000 people - - - and "heavy reliance on natural resources as the main source
of exports" including fisheries, the OECD said.
Icelandic lenders have forgiven household debt equal to about 12% of
gross domestic product since the bank failures of 2008. Through the end of 2012, the
island’s lenders had written off 212.2bn krona ($1.7bn), according
to the Icelandic Financial Services Association. The group estimates a further
35.3bn krona will be forgiven this year.
The OECD noted that according to Statistics Iceland, nearly half of Icelanders
are having trouble making ends meet every month, despite the country's strong economic
recovery since the financial
crisis of 2008, when its top three banks collapsed. "Household debt has
fallen significantly from the crisis peak relative to both GDP and total
assets," it said.
But the decline "has not, however, translated into a large reduction in the
proportion of households in financial difficulty, which has only come down from
a peak of 52% in 2011 to 48% in 2012," it added.
Government debt shot up to 120% of GDP in the wake of the financial crisis.
The government and the IMF agreed that bringing debt down to more prudent levels
needed to be a central pillar in the economic recovery programme. Accordingly,
the government embarked on a substantial, multi-year fiscal consolidation
programme aimed at reducing general government gross debt (Maastricht
definition, which excludes funding deficits in government employee pension
schemes) to 60% of GDP.
Ásgeir Jónsson, an assistant professor of economics at the University of
Iceland, says in
an article on Deutsche Welle dealing with the economy and the
recent general election:
[The clear winner of the elections, the Progressive party, which is
traditionally the agrarian party in Iceland, rode to victory on the platform of
using "vulture funds" money to write down household mortgage debt. It is a
simple but winning formula. About 85% of household debt is
inflation-indexed and the average homeowner has seen the principal of his loan
rise in excess of 40% due to the inflationary wave that followed the
collapse of the Icelandic krona (ISK) in 2008. At the same time, the asset
recovery of the failed banks has actually been much better than forecasted.
The political discourse is now dominated by all kinds of feel-good policies,
goals and promises to the public, many of which are mutually exclusive or not
even attainable. It is for example impossible to simultaneously promise the
abolition of capital controls and low inflation and higher purchasing power in
the short run. Nor is it possible to maintain fixed exchange rates while
simultaneously stimulating domestic demand - - if exports are lacking.]
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