Economy of Iceland 64582 223997462 2008-07-06T21:44:54Z Lightbot 7178666 Units/dates/other {{Infobox Economy |country = Iceland |image = Iceland-from-space.png |width = 250 |caption = Iceland |currency = [[Icelandic krona]] (ISK) |year = calendar year |organs = [[World Trade Organization|WTO]], [[EFTA]], [[OECD]], [[European Economic Area|EEA]] |rank = 141st |inflation = 11,8% (2008 est.) |poverty = no data |labor = 173,000 (2006 est.) |occupations = agriculture: 5.1%, industry: 23%, services: 76% (2006) |unemployment = ~1% (2007 est.) |industries = fish processing; aluminum smelting, ferrosilicon production; geothermal power, tourism |exports = $3.587 billion f.o.b (2006 est.) |export-goods = fish and fish products 70%, aluminum, animal products, ferrosilicon, diatomite. |export-partners = [[United Kingdom|UK]] 17.9%, [[Germany]] 16.4%, [[Netherlands]] 13%, [[United States|US]] 8.1%, [[Spain]] 7.7%, [[Denmark]] 4.3% (2005) |imports = $5.189 billion (2006 est.) |import-goods = machinery and equipment, petroleum products, foodstuffs, textiles |import-partners = Germany 13.4%, US 9.1%, [[Sweden]] 8.6%, Denmark 7.3%, [[Norway]] 7.2%, UK 5.9%, [[China]] 5.3%, Netherlands 5%, [[Japan]] 4.7% (2005) |debt = $3.073 billion (2002) |revenue = $7.345 billion |expenses = $6.655 billion; including capital expenditures of $467 million (2006 est.) |aid = no data |cianame = ic }} The '''economy of [[Iceland]]''' is small but well-developed (most developed in the world according to United Nations [[Human Development Index]]), with a [[gross domestic product]] estimated at [[United States dollar|US $]] 12.172 billion (132nd of 227 countries) in 2005 (and a [[per capita]] GDP of $40,277, which is among the world's highest).<ref>{{cite website | url=https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html | title=The World Factbook: Rank Order - GDP - Per capita | publisher=Central Intelligence Agency | accessed=June 21, 2006}}</ref> Like the other [[Nordic countries]], [[Iceland]] has a [[mixed economy]] that is mainly [[capitalism| capitalist]]ic but supports an extensive [[welfare state]]. [[Welfare state#The welfare state and social expenditure|Social expenditure]] is, however, below that of mainland Scandinavia and most of western Europe. The Icelandic economy is highly dependent on the [[fishing]] industry, which provides 70% of [[export]] income and employs 6.0% of the workforce; therefore, the state of the economy remains sensitive to world prices for fish products.<ref>{{cite website | url=https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html | title=The World Factbook - Iceland - Economy | publisher=Central Intelligence Agency | accessed=June 21, 2006}}</ref> ==Geography and resources== ==Currency and monetary policy== {{main|Icelandic króna}} <!-- Deleted image removed: [[Image:ISK 100 note.jpg|250px|right|thumb|One hundred krónur]] --> The currency of Iceland is the ''króna'' (plural: ''krónur''), issued exclusively by the [[Central Bank of Iceland]] since the bank's founding in 1961.<ref>{{cite website | url=http://www.sedlabanki.is/?PageID=187 | title=Notes and Coin | publisher=Central Bank of Iceland | accessed=June 21, 2006}}</ref> The exchange rate in 2008 was 78. krónur to the United States dollar, down from 97.43 in 2001.<ref>{{cite website | url=https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html | title=The World Factbook - Iceland - Economy | publisher=Central Intelligence Agency | accessed=June 21, 2006}}</ref> [[Monetary policy]] is carried out by the Central Bank of Iceland, which maintains a 2.5% inflation [[target rate]], adopted in March 2001.<ref>{{cite website | url=http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=3363 | title=The Economy of Iceland | publisher=The Central Bank of Iceland | page=9 | accessed=June 22, 2006}}</ref> Iceland's economy is prone to inflation but remains rather broad-based and highly export-driven. During the 1970s the [[oil shocks]] hit Iceland hard. Inflation rose to 43% in 1974 and 59% in 1980, falling to 15% in 1987 but rising to 30% in 1988. Since then, inflation has dramatically fallen, and the current government is committed to tight fiscal measures. The current unemployment rate stands at a record low 1%. Iceland experienced moderately strong GDP growth (3% on average) from 1995 to 2004. Growth slowed between 2000 and 2002, but the economy expanded by 4.3% in 2003 and grew by 6.2% in 2004. Growth in 2005 exceeded 6%. Inflation averaged merely 1.5% from 1993-94, and only 1.7% from 1994-95. Inflation over 2006 topped at 8.6%, with a rate of 6.9% as of January 2007. [[Standard & Poor's]] reduced their rating for Iceland from AA- to A+ (long term) in December 2006, following a loosening of fiscal policy by the Icelandic government ahead of the 2007 elections. [http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=4904] [http://www.economist.com/finance/displaystory.cfm?story_id=9516621] Foreign debt has risen to more than five times the value of its GDP, and Iceland's Central Bank has raised short-term interest rates to nearly 15% in 2007. ==Imports and exports== Iceland's economy is highly export-driven. Marine products account for the majority of goods exports. Other important exports include aluminum, ferro-silicon alloys, machinery and electronic equipment for the fishing industry, software, and woolen goods. Most of Iceland's exports go to the [[European Union]] (EU) and [[European Free Trade Association]] (EFTA) countries, the [[Economy of the United States|United States]], and [[Economy of Japan|Japan]]. The 2005 value of Iceland's exports was $3.215 billion [[f.o.b.]] <ref>{{cite website | url=http://www.buyusa.gov/iceland/en/86.html#_section4 | title=Country Commercial Guide - Iceland | publisher=[[United States Commercial Service]] | accessed=June 21, 2006}}</ref><ref>{{cite website | url=https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html | title=The World Factbook - Iceland - Economy | publisher=Central Intelligence Agency | accessed=June 21, 2006}}</ref> The main imports are machinery and equipment, [[petroleum]] products, foodstuffs and textiles. Cement is Iceland's most imported natural resource. The total 2005 value of imports was $4.582 billion. Iceland's primary import partner is [[Economy of Germany|Germany]], with 12.6%, followed by the United States, Norway, and Denmark. Most agricultural products are subject to high [[tariffs]]; the import of some products, such as uncooked meat, is greatly restricted for phyto-sanitary reasons. <ref>{{cite website | url=http://www.buyusa.gov/iceland/en/86.html#_section4 | title=Country Commercial Guide - Iceland | publisher=[[United States Commercial Service]] | accessed=June 21, 2006}}</ref><ref>{{cite website | url=https://www.cia.gov/library/publications/the-world-factbook/geos/ic.html | title=The World Factbook - Iceland - Economy | publisher=Central Intelligence Agency | accessed=June 21, 2006}}</ref> Iceland's relatively liberal trading policy has been strengthened by accession to the [[European Economic Area]] in 1993 and by the [[Uruguay Round agreement]], which also brought significantly improved market access for Iceland's exports, particularly [[seafood]] products. However, the agricultural sector remains heavily subsidized and protected; some [[tariff]]s range as high as 700%. ==Transportation== {{main|Transport in Iceland}} The main form of transportation in Iceland is the national road system, connecting most of the population centers. Organized road building began in the 1900s and has greatly expanded since 1980. The main highway, [[Route 1 (Iceland)|Þjóðvegur 1]], is a circular road that runs along the coast almost completely around Iceland, leaving out only [[Vestfirðir]]. Þjóðvegur 1 lies through most of the main urban centers in Iceland, but there are also many smaller roads to smaller towns and villages, including some mountain roads in the Icelandic Highlands. Regular air and sea service connects [[Reykjavík]] with the other main urban centers. In addition, airlines schedule flights from Iceland to Europe and North America. The national airline, [[Icelandair]], is one of the country's largest employers. In 2000 a new low cost carrier Iceland Express started connections to Copenhagen and London, which meant cheaper airfare to and from Iceland. Domestic air travel remains important for those that need to travel frequently between different parts of the country, but coastal sea travel is reserved only for transportation of goods and even so, it is giving way to transportation by trucks. In 2005, transportation of goods got almost completely off the sea and on the roads when Iceland's shipping companies quit their scheduled cargo-ship transportation around Iceland from Reykjavik and emphasized on truck transportation of goods. Iceland has no [[railroad]]s. In 1998 the [[Alþing|Icelandic Parliament]] committed to convert the national vehicle and fishing fleets to [[hydrogen fuel]] in order to become a virtually energy-independent [[zero-carbon economy]].<ref name="SDPUC">[http://www.state.sd.us/puc/pressreleases/pr2003/1010.htm Powering The Plains], South Dakota Public Utilities Commission, published 2003, accessed 2007-05-14</ref> It is expected that this will be accomplished by 2050, and a number of [[Renewable energy in Iceland|Icelandic hydrogen demonstration and development projects]] are in progress. ==Economic agreements and policies== Iceland became a full [[European Free Trade Association]] member in 1970 and entered into a free trade agreement with the [[European Community]] in 1973. Under the agreement on a [[European Economic Area]], effective [[January 1]], [[1994]], there is basically free cross-border movement of [[capital]], [[labour (economics)|labor]], [[Good (economics)|goods]], and services between Iceland, [[Norway]], and the EU countries. However, the government of Iceland remains opposed to EU membership, primarily because of Icelanders' concern about losing control over their fishing resources. Iceland also has bilateral free trade agreements with several countries outside the EEA. The most extensive of these is the [[Hoyvík Agreement]] between Iceland and the [[Faroe Islands]], this agreement goes even further than the EEA agreement by establishing free trade in agricultural products between the nations. Iceland has a free trade agreement with Mexico on November 27, 2000. The center-right government plans to continue its generally [[neo-liberal]] policies of reducing the budget and current account deficits, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, diversifying the economy, and privatising state-owned industries. ==Manufacturing== The presence of abundant electrical power due to Iceland's geothermal energy sources has led to the growth of the manufacturing sector. Power-intensive industries, which are the largest components of the manufacturing sector, produce mainly for export. Manufactured products constituted 36% of all merchandise exports, an increase from the 1997 figure of 22%. Power-intensive products's share of merchandise exports is 21%, compared to 12% in 1997.<ref>{{cite website | url=http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=3363 | title=Economy of Iceland | publisher=Central Bank of Iceland | page=23 | accessed=June 22, 2006}}</ref> ===Aluminium=== <!-- Commented out because image was deleted: [[Image:Alcan straumsvik.jpg|thumb|300px|Alcan's aluminum plant in Straumsvík, Iceland]] --> [[Aluminium smelting]] is the most important power-intensive industry in Iceland. There are currently two plants in operation, with one under construction and two in the planning stage. [[Alcan]] owns a plant in Straumsvík near the town of [[Hafnarfjörður]] which has been in operation since 1969. Its initial capacity was 33,000 metric tons per year (mtpy) but has since been expanded several times and now has a capacity of 180,000 mtpy. Alcan is studying the feasibiliy of expanding the plant to a capacity of 460,000 mtpy; negotiations are already underway with the power companies [[Landsvirkjun]] (the national power company) and [[Orkuveita Reykjavíkur]], although it is yet unclear if the [[Municipalities of Iceland|municipality]] of Hafnarfjörður will allow such an expansion, but the inhabitants of Hafnafjörður are going to vote whether they want to expand the alminunum smelting or not. The second plant started operations in 1998 and is operated by Norðurál, a wholly owned subsidiary of U.S.-based [[Century Aluminum Company]]. It is located in [[Grundartangi]] in Western Iceland near the town of [[Akranes]]. Its current capacity is 220,000 mtpy but an expansion to 260,000 mtpy is already underway and is expected to be completed in the last quarter of 2007.<ref>{{cite website | url=http://nordural.is/default.asp?sid_id=1878&tre_rod=001|001|006|&tId=2&fre_id=31134&meira=1 | title=Viðbótarstækkun Norðuráls flýtt | date=April 3, 2006 | publisher=Norðurál | accessed=June 22, 2006}}</ref> United States-based aluminum manufacturer [[Alcoa]] has become a major investor in Iceland and has a major plant under construction near the town of [[Reyðarfjördur]]. The plant, known as ''Fjarðaál'' (or "aluminum of the [[fjord]]s") will have a capacity of 322,000 mtpy and is anticipated to be completed in 2007. To power the plant, Landsvirkjun will construct [[Kárahnjúkar Hydropower Project|Kárahnjukar]], a 630-[[megawatt]] hydropower station. According to Alcoa, construction of Fjarðaál will entail no human displacement, no impact on [[endangered species]], and no danger to commercial fisheries; there will also be no significant effect on reindeer, bird and seal populations.<ref>{{cite website | url=http://www.alcoa.com/iceland/en/alcoa_iceland/fjardaal_background.asp | title=Fjarðaál Overview | publisher=Alcoa Aluminum | accessed=June 22, 2006}}</ref> However, the project has drawn considerable opposition from environmentalist groups such as the [[World Wide Fund for Nature]], which called on Alcoa to abandon the plan to build Fjarðaál. In addition, Icelandic singer [[Björk]] was a notable early opponent to the plan; protesting the proposed construction, the singer's mother, Hildur Rúna Hauksdóttir, went on a [[hunger strike]] in 2002.<ref>{{cite website | url=http://news.bbc.co.uk/2/hi/entertainment/2336349.stm | title=Bjork's mother on hunger strike | date=October 17, 2002 | publisher=BBC News | accessed=June 22, 2006}}</ref> Alcoa is also conducting a feasibility study on the possibility of building a second plant in Iceland near [[Húsavík]]. That plant would have a 250,000 mtpy capacity and be powered entirely by [[geothermal power]]. If the decision will be made to build the plant, construction would not start before 2010.<ref>{{cite website | url=http://www.alcoa.com/iceland/en/news/whats_new/2006/2006_05_mou.asp | title=Alcoa, Government of Iceland and Municipality of Húsavík Sign Memorandum of Understanding | date=May 17, 2006 | publisher=Alcoa | accessed=June 22, 2006}}</ref> Norðurál has signed a memorandum of understanding to purchase electricity for its own aluminum reduction project in [[Helguvík]]. The agreement was reached between Norðurál and two Icelandic geothermal power producers, [[Hitaveita Suðurnesja]] and [[Orkuveita Reykjavíkur]]. The power supplied will initially support aluminum production of 150,000 mtpy, which will eventually grow to support 250,000 mtpy. <ref>{{cite website | url=http://www.nordural.is/Default.asp?Sid_Id=1879&tId=2&Tre_Rod=002|&fre_id=33704&meira=1 | title=Century Aluminum Company Icelandic Subsidiary Signs Energy MOU for Helguvik Greenfield Smelter | date=June 2, 2006 | publisher=Nordural | accessed=June 22, 2006}}</ref> If all of the currently proposed expansions and new plants are constructed, the total production capacity of the Icelandic aluminum industry will rise to 1,542,000 mtpy, compared to the current capacity of 400,000 mtpy. ===Medical products and pharmaceuticals=== Iceland is an exporter of medical products, including [[prosthetics]], diagnostic equipment, and medical software; the 2003 value of these exports was 13.5 billion krónur.<ref>{{cite website | url=http://www.icelandexport.is/icelandexport2/english/industry%5Fsectors%5Fin%5Ficeland/medical%2D%5Fcosmetic%2D%5Fhealth%5Ftechnology%5Fin%5Ficeland/ | title=Iceland Export Directory - Medical, Cosmetic, Health Technology in Iceland | publisher=Iceland Ministry of Foreign Affairs and External Trade | accessed=June 22, 2006}}</ref> Actavis, a [[generic drug]] manufacturer, purchased U.S.-based Amide Pharmaceuticals in 2005 for between $500 and $600 million<ref>{{cite website | url=http://biz.yahoo.com/ic/108/108825.html | title=Amide Pharmaceutical, Inc. Company Profile | publisher=Yahoo! Finance | accessed=June 22, 2006}}</ref>, as well as the generics business of [[Alpharma]] Inc.; Actavis had 2005 sales of [[Euro|€]]551 million and a net profit of €81 million. Its shares are traded on the Icelandic Stock Exchange and the company is part of the [[ICEX-15]] index.<ref>{{cite website | url=http://www.actavis.com/Investors/stockinfo.htm | title=Stock price | publisher=Actavis | accessed=June 22, 2006}}</ref><ref>{{cite website | url=http://www.actavis.com/Investors/corporatefactsheet.htm | title=Corporate Fact Sheet | publisher=Actavis | accessed=June 22, 2006}}</ref> Decode Genetics, a worldwide leader in the field of biotechnology is also based in Iceland. ==Finance== ===Banks=== {{main|Banks of Iceland}} Iceland currently has three major commercial banks - [[Glitnir (bank)|Glitnir]], [[Landsbanki]] and [[Kaupthing Bank|Kaupþing Bank]] - and a fourth, Icebank, which serves as the clearinghouse for the 29 locally run savings banks. All of the major banks are publicly listed on [[Kauphöll Íslands]] (the Iceland Stock Exchange), though each was either wholly state-owned or merged with previously state-owned banks in the past. The banks are competitive and each has branches and ATMs across Iceland. Each of the three major banks usually holds about a quarter of the total deposits, with the remaining share held by the savings banks and a small [[Giro|Postal Giro]] system. Because of the persistence of high inflation, most deposits are held in time (savings) deposits and currency-linked accounts rather than demand (checking) deposits. Each of the major Icelandic commercial banks has offices in various American and European banking centers, but no foreign bank currently operates in Iceland due to the long distances and small market. The commercial banks have become much more aggressive in their lending since the liberalization of interest rates in 1986. ===Stock market=== <!-- Deleted image removed: [[Image:icex.jpg|right|thumb|250px|The Iceland Stock Exchange's headquarters in [[Reykjavík]]]] --> Because of the persistent inflation, historical reliance on fish production and the long-standing public ownership of the commercial banks, equity markets were slow to develop. [[Kauphöll Íslands]], the Iceland Stock Exchange (better known as ICEX), was created in 1985. Trading in Icelandic T-Bonds began in 1986 and trading in equities commenced in 1990. All domestic trading in Icelandic [[equities]], [[Bond (finance)|bonds]] and [[mutual fund]]s takes place on the ICEX. The ICEX has used electronic trading systems since its creation. Since 2000, [[SAXESS]], the joint trading system of the [[NOREX]] alliance, has been used. There are currently two equities markets on the ICEX. The Main Market is the larger and better known of the two. The Alternative Market is a less regulated over-the-counter market. Because of the small size of the market, trading is illiquid in comparison with larger markets. A variety of firms across all sectors of the Icelandic economy are listed on the ICEX. The most important stock market index is the [[ICEX 15]]. ===Other financial markets=== Historically, investors tended to be reticent to hold Icelandic bonds because of the persistence of high inflation and the volatility of the Króna. What did exist was largely limited to bonds offered by the central government. The bond market on the ICEX has boomed in recent years, however, largely because of the resale of mortgages as housing bonds. A [[mutual fund]] market exists on the ICEX in theory, but no funds are currently listed. A small [[derivatives market]] formerly existed, but was closed in 1999 because of illiquidity. ==Growth== Iceland's economy has been diversifying into [[manufacturing]] and [[service industries]] in the last decade, and new developments in [[software]] production, [[biotechnology]], and [[financial services]] are taking place. The [[tourism]] sector is also expanding, with the recent trends in [[ecotourism]] and [[whale-watching]]. Growth has slowed between 2000 and 2002, but is expected to pick up in the future. Following the decision by the Icelandic government to recommence commercial whaling, there is a school of thought that would like to boycott tourism in Iceland. ==See also== *[http://www.oecd.org/iceland/ OECD's Iceland country Web site] and [http://www.oecd.org/eco/surveys/iceland/ OECD Economic Survey of Iceland] *[[Economy of Europe]] *[[Whaling in Iceland]] ==Notes== {{reflist}} ==External links== *Economic figures updated regularly can be found on the official website of the Icelandic Bureau of Statistics - http://www.statice.is *Kauphöll Íslands (Iceland Stock Exchange - ICEX) - http://www.icex.is * Integrated financial services in Iceland - http://www.kaupthing.com * [http://www.link2exports.co.uk/marketprofiles/regions.asp?lsid=1458/ Iceland Country Profile on the link2exports website] {{Iceland topics}} {{EFTA}} {{WTO}} {{OECD}} {{Economy of Europe}} [[Category:Economy of Iceland| ]] [[Category:WTO member economies|Iceland]] [[Category:OECD member economies|Iceland]] [[Category:European Free Trade Association|Iceland]] [[bn:আইসল্যান্ডের অর্থনীতি]] [[de:Wirtschaft Islands]] [[es:Economía de Islandia]] [[fr:Économie de l'Islande]] [[is:Efnahagur Íslands]] [[lt:Islandijos ekonomika]] [[pt:Economia da Islândia]] [[ro:Economia Islandei]] [[sv:Islands ekonomi]] [[vi:Kinh tế Iceland]]