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GDP (2002): $8.4 billion.
GDP growth rate (2002): -0.5%. (est. 2003): 2.75%.
Per capita GDP (2002): $29,446.
Inflation rate (est. 2002): 4.8%.
Budget (2003): $3.4 billion.
Annual budget surplus (est. 2003): 1.8% of GDP.
Net public debt (est. 2003): 23,2% of GDP.
Foreign aid as part of 2002 budget: 0.13% of GDP.
Natural resources: Marine products, hydroelectric and geothermal power, diatomite.
Agriculture: Products--potatoes, tomatoes, cucumber, turnips, livestock.
Industry: Types--aluminum smelting, fishing and fish processing technology, ferrosilicon alloy production, geothermal power, tourism, information technology.
Trade: Exports (2002)--$2.2 billion: marine products 71%, other manufacturing products 22%, miscellaneous 5%, and agriculture 2%. Partners--EU 65% (U.K. 19%, Germany 15%, France 7%, Denmark 5%); U.S. 11% ($222 million); EFTA 9%; Japan 5%. Imports (2002)--$2.3 billion: industrial supplies 26%; capital goods, parts, accessories 24%; consumer goods 20%; transport equipment 14%; food and beverages 9%; fuels and lubricants 7%. Partners--EU 56% (Germany 11%, U.K. 10%, Denmark 8%, Sweden 6%, Netherlands 6%); U.S. 11% ($251 million); EFTA 11%; Japan 5%.
Economy of Iceland
Marine products account for the majority of Iceland's exports of goods. Other important exports include aluminum, ferro-silicon alloys, equipment and electronic machinery for fishing and fish processing, pharmaceuticals, and woolen goods. Information technology and related services is an important growth area. Foreign trade plays an important role in the Icelandic economy. Exports account for about one-fourth of GDP and imports for one-third. Most of Iceland's exports go to the EU and EFTA countries, the United States, and Japan. The United States is Iceland's largest bilateral investment partner and largest partner in services trade.
Iceland's relatively liberal trading policy was strengthened by accession to the European Economic Area in 1994 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.
Iceland's economy is prone to inflation but remains rather broad-based and highly export-driven. The 1970s 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 1990, due to economic reforms and deregulation, inflation has dramatically fallen, averaging only 4.85% from 1990-2000. Due to several years of strong economic growth, Iceland experienced the best economic period in its history in the 1990s. However, the economy fell into recession in late 2001 and inflation began to escalate. In March 2001, the Central Bank adopted an inflation target exchange rate policy instead of an index rate policy with the aim of managing the value of the Icelandic Krona to keep inflation below a certain level. In addition, the government urged municipalities, labor unions, and private parties to unite in keeping inflation down. Unemployment more than doubled to 2.6%, and inflation that spiked above 9% threatened to give labor unions leverage to abrogate national wage agreements. The government took monetary and fiscal measures that brought inflation down close to the current target rate of 3%. Inflation remained moderate in 2002, but with slightly negative GDP growth. The government expects a return to positive growth in 2003.
Iceland has few proven mineral resources, although deposits of diatomite (skeletal algae) are mined. Abundant hydroelectric and geothermal power sources allow about 90% of the population to enjoy heating from these natural resources. The Burfell hydroelectric project is the largest-single station with capacity of 240 mw. The other major hydroelectric stations are at Hrauneyjarfoss (210 mw) and Sigalda (150 mw). Iceland is exploring the feasibility of exporting hydroelectric energy via submarine cable to mainland Europe and also actively seeks to expand its power-intensive industries, including aluminum and ferro-silicon smelting plants. Nordural Aluminum is a wholly owned investment by Columbia Ventures of Washington State. The plant employs more than 150 people and recently expanded to 90,000 tons per year capacity, which is planned to double before the end of the decade. Power projects in the connection with Alcoa's 322,000 tons per year capacity aluminum smelter have already taken off. The smelter will be opened for production in 2007 at which point over $2 billion will have been invested in this largest project in Icelandic history.
Iceland has no railroads. Organized road building began about 1900 and has greatly expanded in the past decade. The current national road system connecting most of the population centers is largely in the coastal areas and consists of about 13,000 kilometers (8,125 mi.) of roads with about 3,955 kilometers (2,547 mi.) were paved. Regular air and sea service connects Reykjavik with the other main urban centers. The national airline, Icelandair, flies from Iceland to Europe and North America, and is one of the country's largest employers. 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, labor, goods, and services between Iceland, Norway, and the EU countries.