ICELANDIC ECONOMIC SITUATION OVERVIEW. March 2015

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1 ICELANDIC ECONOMIC SITUATION OVERVIEW March 15

2 ICELAND AT A GLANCE State and Government Capital Population Currency GDP per capita Long term credit ratings Republic, written constitution, parliamentary form of government Coalition: Independence Party and Progressive Party, formed in May 13 Parliament: Althingi established in 93, currently 3 members Reykjavik 39, as of th quarter 1 (Source: Statistics Iceland) Icelandic Krona (ISK) February 15 monthly average (source CBI) USD = ISK 13 EUR = ISK 15 USD 5,137 in 13 (Source: Statistics Iceland) Moody s: Baa3 / Stable S&P: BBB- / Positive Fitch: BBB / Positive Political Milestones Location Area Northern Europe Flying time: 5.5 and 3 hours from New York and London respectively 13, km / 39,75 sq. miles Full independence in 19 Member of OECD 19 Joined EFTA in 197 Started EU membership application* Member of UN 19 *Membership application put on hold in June 13 Member of NATO 199 Access to EEA in 199

3 THE ICELANDIC ECONOMY Facts Iceland is emerging steadily from a recession caused by the collapse of its economy and banking system Inflation (1): % GDP growth (1): 1,9% Unemployment (1): 3,% Life expectancy (1): Men: 1,, women:,3 Tourism and Transportation 3% Export of goods and services by type 13 Other Manufactured Goods and Products 9% Other Service Sectors 1% Marine Products 7% Agricultural Products 1% Aluminium and Ferrosilicon 3% Icelandic population GDP per capita, USD PPP 9% % 7% % 5% % 3% % 1% % , 3, 31, 3, 9,, 7,, 5,, 5, 5,, 35, 3, 5,, 15, 1, 5, Total inhabitants % of foreign citizens Iceland EU 3

4 WITH LOW UNEMPLOYMENT AND STRONG EXPORT SECTOR... % Inflation % Unemployment Statistics Iceland Statistics Iceland - Forecast IMF - Forecast Directorate of Labour Statistics Iceland - Forecast IMF - Forecast Index, =1 Exports Goods and services export Goods exports Service exports GDP Imports % Real wages Real wages

5 ICELAND IS RECOVERING FASTER THAN OTHERS... Real GDP growth - volume EU memebers Other IMF program countries UK France Netherlands Germany Iceland Ireland Greece Cyprus Portugal Iceland 5

6 STRONG GROWTH CLOSES THE OUTPUT GAP... GDP grew by 1,9% in 1, year on year (3.% growth in 13) The growth is mainly driven by a large increase in the gross domestic final expenditure (5.3%) Growth prospects are good with average around 3% Private consumption has been growing steadily since 11. Last year it grew by 3.7% Investment, which is quite volatile, grew by 13.7% in 1 % Real annual growth % Private consumption GDP Proj Government consumption Gross fixed capital formation =1 1 1 % 3% % 1% % -1% -% -3% -% GDP and final expenditure Gross domestic final expenditure Output gap GDP

7 AND FALL IN EXCHANGE RATE HAS TRIGGERED CURRENT ACCOUNT TURNAROUND 1 Real exchange rate 1 Underlying Current Account Balance Labour cost Consumer prices Central Bank of Iceland IMF - Forecast Central Bank of Iceland - Forecast Trade balance Imports Exports Trade Balance 1, 1, 1, Rising share of tourism 3% 5% % 15% 1% 5% % Tourism Total Export of goods and services Share of Tourism (R-axis) 7

8 LABOUR MARKET HAS RECOVERED Registered unemployment was 3.% in 1. It is projected to be around 3% until 19 Unemployment was around % in 9 and 1 Unemployment has decreased fastest among the least educated (ISCED 1,) but increased recently for those with tertiary education (ISCED 5,) Net immigration fell in 9 and 1 but has since then picked up % Unemployment (registered) 9 Proj Unemployment by education Net immigration and population growth 1 1 1,,,,, -, -, -, Icelandic citizens Foreign citizens ISCED 1, ISCED 3, ISCED 5, Total net immigration Net population growth

9 AND PRODUCTIVITY IS STABLE Labor productivity Productivity, GDP per hour worked General government debt and deficit, %GDP Greece Ireland 1 France Iceland 1 Germany Maastricht

10 BUT CHALLENGES REMAIN The overriding objective of the fiscal plan has been to achieve a substantial surplus in the primary balance to counteract the deficit in the interest balance and produce a surplus in the overall balance of the Treasury Interest expenditure is a significant burden for the Treasury One of the main challenges is to reduce total debt in the coming years 3% 3% 3% 3% % % % % % Total Balance (excl. Irregular items) Total balance (R. axis) Revenue Expenditure 1% % % % % % -% -% -% -% 1 1 ISK billion Interest expenditure, nominal (l-axis) Interest exp. % of GDP (r-axis) % of GDP ISK billion % of GDP, 1 1,5 1, , Gross debt (l-axis) Net fin. pos. (l-axis) Gross debt (r-axis) 1

11 WITH HIGH DEBT LEVELS % of GDP Corporate Debt Outstanding % of GDP Total Household Debt Q Indexed Exchange rate-linked Non-Indexed Overdraft Asset financing agreements ISK million 1,, 1,, 1,, 1,,,,,,,,,, Total External Debt ISK billion 3% 5% % 15% 1% 5% % FX Borrowing by Households Total household foreign-denominated borrowing from deposit money banks Foreign denominated borrowing as a % of household's borrowing (L-axis)

12 AND CAPITAL CONTROLS NEED TO BE LIFTED Conditioned based removal of controls: macroeconomic developments potential balance of payments and foreign exchange effects financial stability Estimated domestic/foreign breakdown of assets and claims of DMBs in winding-up proceedings Claims Assets Foreign Domestic in FX Domestic in ISK Domestic Off shore ISK Authorities have expressed preference for: simplicity over complexity time efficiency for liberalization for the real economy minimizing legal risks finality of the crisis related legacies HFF bonds Treasury notes and bills Deposits 1 * Foreign-denominated loans of domestic parties, excl. Landsbankinn, to the failed banks

13 BUT ICELAND S BANKS ARE ON A RIGHT TRACK 35% Commercial Banks Capital Adequacy Ratios 3% 5% % 15% 1% 5% % Dec-11 Jun-1 Dec-1 Jun-13 Dec-13 Jun-1 Landsbankinn Islandsbanki Arion Bank MP Bank 1% % % % Commercial Banks s Funding 5,,,, 3,,,, Loans and assets of the banking system (ISK millions) % % Dec-9 Dec-11 Dec-1 Dec-13 Deposits Other Borrowings Subordinated Loans Equity 1,, 13 Q1 13 Q 13 Q3 13 Q 1 Q1 1 Q 1 Q3 1 Q Assets of the banking system Loans of deposit instituions Loans of deposit instituions (homes) 13

14 AND KEY SECTORS REMAIN STRONG 1 Catch Value as a % of GDP GWh 1, 1, 1, 1, 1,,,,, Energy Transmitted by Landsnet Thousand Tourists to Iceland 1, 1, Tourists via airports Tourists via cruise ships Price indices of Marine Products ISK Price Index (L) XDR Price index (r), 15, 1, 5, Electricity Capacity and Generation 3,,5, 1,5 1, 5 Annual generation of energy (GWh Left axis) Installed capacity at end of period (MW Right Axis) Foreign Passengers through Keflavik Airport 1 Denmark 5% Norway % France % Germany 9% Canada % Netherl. 3% Sweden % USA 1% Other 9% UK 19% 1

15 Thank you for your attention twitter.com/moficeland

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