Iceland's economy combines a capitalist structure and free-market principles with an extensive welfare system. Except for a brief period during the 2008 crisis, Iceland has in recent years achieved high growth, low unemployment, and a remarkably even distribution of income. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of tourism, software production, and biotechnology. Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminum sector, boosted economic growth, and sparked some interest from high-tech firms looking to establish data centers using cheap green energy.
Tourism, aluminum smelting, and fishing are the pillars of the economy. For decades the Icelandic economy depended heavily on fisheries, but tourism has now surpassed fishing and aluminum as Iceland’s main export industry. Tourism accounted for 8.6% of Iceland’s GDP in 2016, and 39% of total exports of merchandise and services. From 2010 to 2017, the number of tourists visiting Iceland increased by nearly 400%. Since 2010, tourism has become a main driver of Icelandic economic growth, with the number of tourists reaching 4.5 times the Icelandic population in 2016. Iceland remains sensitive to fluctuations in world prices for its main exports, and to fluctuations in the exchange rate of the Icelandic Krona.
Following the privatization of the banking sector in the early 2000s, domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign currencies. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totaled nearly nine times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in February 2009. Three new banks were established to take over the domestic assets of the collapsed banks. Two of them have majority ownership by the state, which intends to re-privatize them.
Since the collapse of Iceland's financial sector, government economic priorities have included stabilizing the krona, implementing capital controls, reducing Iceland's high budget deficit, containing inflation, addressing high household debt, restructuring the financial sector, and diversifying the economy. Capital controls were lifted in March 2017, but some financial protections, such as reserve requirements for specified investments connected to new inflows of foreign currency, remain in place.
1990 | 2000 | 2010 | 2020 | |
GNI, Atlas method (current US$) (billions) | .. | 8.87 | 11.54 | 22.87 |
GNI per capita, Atlas method (current US$) | .. | 31,540 | 36,270 | 62,410 |
GNI, PPP (current international $) (billions) | .. | 8.06 | 10.23 | 19.07 |
GNI per capita, PPP (current international $) | .. | 28,670 | 32,170 | 52,030 |
GDP (current US$) (billions) | 6.47 | 9.03 | 13.75 | 21.72 |
GDP growth (annual %) | .. | 5 | -2.8 | -6.5 |
Inflation, GDP deflator (annual %) | .. | 4 | 6.4 | 3.2 |
Agriculture, forestry, and fishing, value added (% of GDP) | .. | 7 | 6 | 4 |
Industry (including construction), value added (% of GDP) | .. | 23 | 22 | 20 |
Exports of goods and services (% of GDP) | 33 | 32 | 52 | 34 |
Imports of goods and services (% of GDP) | 32 | 39 | 42 | 35 |
Gross capital formation (% of GDP) | 21 | 25 | 14 | 22 |
Revenue, excluding grants (% of GDP) | 28.4 | 32.1 | 31.9 | 30.2 |
Net lending (+) / net borrowing (-) (% of GDP) | -2.6 | 2.6 | -5.9 | -0.9 |
States and markets | ||||
Time required to start a business (days) | .. | .. | 5 | 12 |
Domestic credit provided by financial sector (% of GDP) | .. | .. | .. | .. |
Tax revenue (% of GDP) | 23.5 | 25.1 | 20.2 | 21.8 |
Military expenditure (% of GDP) | .. | .. | .. | .. |
Mobile cellular subscriptions (per 100 people) | 3.9 | 76.6 | 106.5 | 123.5 |
Individuals using the Internet (% of population) | 0 | 44.5 | 93.4 | 99 |
High-technology exports (% of manufactured exports) | .. | .. | 21 | 28 |
Statistical Capacity Score (Overall Average) (scale 0 - 100) | .. | .. | .. | .. |
Global links | ||||
Merchandise trade (% of GDP) | 51 | 50 | 62 | 47 |
Net barter terms of trade index (2000 = 100) | .. | 100 | 87 | 80 |
External debt stocks, total (DOD, current US$) (millions) | .. | .. | .. | .. |
Total debt service (% of exports of goods, services and primary income) | .. | .. | .. | .. |
Net migration (thousands) | -1 | 3 | -2 | 2 |
Personal remittances, received (current US$) (millions) | 62 | 36 | 136 | 165 |
Foreign direct investment, net inflows (BoP, current US$) (millions) | -5 | 155 | 257 | -1,026 |
Net official development assistance received (current US$) (millions) | .. | .. | .. | .. |