Iceland Economy

By | November 12, 2021

Business

With a gross national income (GNI) of (2018) 52 103 US dollars per capita, Iceland is one of the northern European countries with very high material prosperity. The stability and growth-oriented market economy of Iceland was able to show success from the 1980s. Iceland was particularly hard hit by the global financial market crisis in 2008 and suffered a sharp decline in economic output.

The gross domestic product (GDP) fell by 8.5% in 2009 and the inflation rate, which was chronically high from 1970–90, reached double digits again in 2008/2009 after a sharp decline in the meantime. However, the stabilization program supported by the International Monetary Fund was successful. In 2010–18, gross domestic product rose steadily, and the inflation rate had fallen to 1.7% by 2016, when it rose again to 2.7% in 2018.

  • Iceland is a country starting with I. Check COUNTRYAAH to find other countries that also begin with letter I.

In contrast to the rest of the Nordic countries, the share of fisheries, fish processing and agriculture in the Icelandic economy is still relatively high. The government has long sought to diversify the economy and expand the industrial and service sectors.

The great distance of Iceland from the world markets, the limited absorption capacity of the domestic market and the lack of raw materials and semi-finished products inhibit the development of a diverse industry. The financial crisis hit the service industry hard. The collapse of the banking system (the insolvency of the three largest banks and their nationalization in the early 2000s) brought Iceland to the brink of national bankruptcy.

Foreign trade: The large import demand for industrial goods and consumer goods has resulted in the negative trade balance for many years. In 2010/2011 it was more or less equalized, but fell back into the red in the following years. In 2017, the value of goods exported was $ 4.9 billion and the value of imports was $ 7 billion. When it comes to exports, products from the fishing industry dominate (42%) ahead of aluminum (38%). In 2018 the five most important importing countries were Norway, China, Germany, the USA and the Netherlands; It was mainly exported to the Netherlands, Great Britain, Spain, the USA and France.

Agriculture

In agriculture, livestock farming predominates for climatic reasons. The most important products are sheep meat, skins and wool as well as milk, dairy products and beef. The number of sheep that graze freely in the interior during the summer and are herded together in a joint action in autumn has fallen from 828,000 in 1980 to 486,500 (2015).

Sheep farming, traditionally one of Iceland’s main livelihoods, has caused significant environmental damage over the centuries. At the time of the conquest, 40% of Iceland was still covered with grassland, today it is only about 20%, at the same time the proportion of wasteland has increased from 18% to 58%. Iceland is independent in the meat, poultry and egg production as well as in the production of dairy products. Horse breeding is of great importance. The number of horses has increased by more than a third since 1980, although it has fallen slightly after a maximum of more than 77,000 (2010) to just under 65,000 (2017). Icelandic horses are a versatile and robust breed. They are exported for sporting purposes and for the autumn drive of the sheep.

Only 1.2% of the land area is arable land. The most important crops are potatoes, cereals, tomatoes and cucumbers. The geothermally heated greenhouses are of particular importance. near Hveragerði, east of the capital, where even strawberries and bananas are grown. They secure almost 70% of the country’s supply of fruit and vegetables.

Fisheries: As before, fishing and fish processing are important branches of the economy with (2017) just over 2% of the workforce and a share of GDP of (2017) 4.5%. By the end of the 1970s, fishery products (including clipfish and stockfish) represented up to 85% of all export goods; their share decreased to 38.5% in 2017. In 1975 the territorial waters were extended to 200 nautical miles to ensure the fishing grounds. In 2014 the total catch was 1.1 million tons. In value terms, by far the most important species of fish was 2017 cod and cod around 45% of the total catch.

Natural resources

Mineral resources (e.g. sulfur, rhyolite) are of little economic importance because of their difficult development. In 2016, researchers discovered that the Reykjanes hot springs, southwest of Reykjavík, are rich in gold.

Energy industry

With (2016) over 17.5 tonnes of crude oil equivalents (TOE) per capita, Iceland has the highest primary energy consumption of all OECD countries. A large part of this, however, is used in energy-intensive industrial companies that have settled in the country because of the low electricity prices with foreign capital participation. This applies above all to aluminum smelters, as well as plants for fertilizers, cement, diatomite processing and ferrosilicon production. The most important domestic energy sources are hydropower and geothermal energy, which (2016) covered over 82% of the total energy demand and almost 100% of the electricity demand. In 2015, 77% of Iceland’s total energy consumption was generated from renewable sources.

The largest power generator with an output of 690 MW is the Kárahnjúkar hydropower plant on the northern edge of Vatnajökull, which went into operation in 2007. It supplies its electricity primarily to the aluminum works of the state energy company Landsvirkjun, but is very controversial because it was built in agricultural protected areas. Heavy industry accounts for 77% of total electricity consumption in Iceland.

The energy potential of geothermal energy is difficult to assess. Their share in electricity production was only 27% in 2017. But 87% of all Icelanders already use geothermal heating and hot water. Settlements and hotels have outdoor pools and pools that are filled with geothermal hot water. In Reykjavík streets are geothermally heated in winter.

Iceland sees itself in the future as a supplier of energy to Europe, but the laying of underwater cables to the continent still encounters technical difficulties due to the tectonically unstable seabed.

Industry

The fishing industry takes first place among the export-oriented branches of industry. Along the coast are z. B. found in most places frozen, fish meal and fish oil factories.

The energy-intensive production of aluminum and ferrosilicon accounts for more than a quarter of the export volume. There are three major aluminum plants: the US companies Alcoa (East Iceland) and Century Aluminum (West Iceland) and the British-Australian Rio Tinto Alcan (south coast); In 2017 they produced more than 70,000 t together.

Among the other traditional areas (fishing equipment, shipbuilding, food industry, processing of wool), the clothing industry with locations in Reykjavík and Akureyri (wool clothing) should be mentioned, as well as the pharmaceutical, bio- and information technology as younger branches of industry.

Tourism

Tourism has developed into an important source of income for Iceland. In 2010 488,600 tourists visited Iceland, in 2017 already 2,224,600. This creates a variety of problems and has prompted the government to regulate tourism more closely.

Main attractions for visitors are hot springs, glaciers, gigantic waterfalls, Thingvellir (the old Thingplatz of the Nordic settlers), the so-called Golden Circle and the inner highlands, but also the capital with its various cultural attractions.

Transportation

Iceland has no railroad; the road network covers around 13,000 km (of which 4,400 km are national roads) and is essentially limited to the coastal areas. There are slopes across the inner highlands that can only be used in summer by specially equipped vehicles. The motorization density is high with (2018) 755 vehicles (up to 8 seats) per 1,000 residents. Omnibuses and domestic air traffic, which have a large number of small landing areas, are also important for passenger traffic. The importance of coastal shipping has declined in favor of trucking. Keflavík International Airport is located west of the capital. The airline Icelandair operated domestic and international routes.

Iceland Economy