News
OECD forecasts less contraction than others
A new forecast on macroeconomic developments from the Organisation for Economic Co-operation and Development (OECD) suggests that the Icelandic economy will contract less than previously estimated and, in fact, less than predicted by other forecasters, including the Icelandic Ministry of Finance, the Central Bank of Iceland and the IMF. OECD expects the contraction this year to be around 7%, or three percentage points less than other forecasts.
The OECD forecast expects a considerably smaller drop in private consumption this year of 16% instead of, for example, the 24.7% decrease forecast by the Ministry of Finance. Provisional figures from Statistics Iceland indicate that private consumption has fallen YoY by 22% during Q1 2009. Indicators of private consumption in April suggest that the contraction that month was similar to that of the first quarter.
On the other hand, OECD expects investment to drop by over 51% this year, which is a sharper contraction than the Ministry of Finance sees in the cards. The Ministry anticipates a drop in investment of 36%. During the first three months of this year, investment has already dropped by over 52% YoY. OECD also forecasts higher public consumption than does the Ministry and a less favourable external trade balance.
In a broader perspective, OECD’s examination suggests that the overall contraction in its member states will be over 4%; despite the enormity of its banks’ collapse, the OECD therefore does not expect Iceland to be much more severely affected than other countries.
OECD also predicts that Iceland’s fiscal deficit next year, which is estimated at 7.2% of GDP, will be less than the average for OECD states (forecast to be 8.8%) and that this year’s deficit will be proportionally slightly above that of the US but less than in both Ireland and the UK.
Average unemployment within the OECD is predicted to be around 10% in 2010, or practically the same as the forecast for Iceland.