Economy of Iceland

Iceland's economy is heavily dependent on fishing and related industries that are responsible for 60 % of exports. The state of the economic situation in the country is heavily influenced by the market for marine products.

Imports and exports

Fisheries products contribute 42% significantly to exports Islands. Other major products are as aluminum, ferrosilicon, fishing and fish processing equipment and wool products. Imports and exports each contribute one third of the gross domestic product. Most of the exports go to the States of the EU and EFTA, the U.S. and Japan.

Iceland's relatively liberal trade policy has been significantly strengthened by the accession to the European Economic Area in 1993 as well. Due to the agreements of the Uruguay Round, which brought improved market access for Icelandic products, particularly fish products, However, the agricultural sector remains heavily subsidized and foreclosed; some import duties be up to 700 %.

Inflation

The Icelandic economy is highly vulnerable to high inflation, particularly due to the high dependence on exports. During the 1970s, the energy crisis hit Iceland hard. Inflation rose to 43% in 1974 and to 59% in 1980 to, recovered to 1987 to 15% in 1988 but increased again to 30%. Since then, inflation has fallen drastically (by about 1.5% in 1993-94, 1994-95 1.7%).

In the wake of the global financial crisis starting in 2007 and the subsequent national financial crisis, inflation increased steadily. In early December 2008, it was 17 %, but was reduced in subsequent years.

The current government is pursuing, supported by the central bank, a tough austerity in fiscal policy. Price stability is sought with an annual inflation rate of 2.5 % as the target.

Growth

During the last decade, the Icelandic economy has diversified slowly, mainly in the manufacturing and the service-providing sector. New enterprises in the field of computer software, biotechnology and financial services have emerged. Also greatly increasing turnover in the tourism business, mainly in the area of ​​ecotourism and whale watching. The annual economic growth was only slight in the years 2000 to 2002.

Economic alliances

Iceland is since 1970 a full member of the EFTA and has completed in 1973 a free trade agreement with the EU. Since the entry into force of the Agreement on the European Economic Area on 1 January 1994 goods, labor, capital and services can run nearly unlimited between Iceland, Norway and the EU Member States.

On 16 July 2009 the Althing supported by dedicated discussion a membership application to the EU, which decided the Sigurddottir government on the same day and filed on the following day to the EU.

Economic sectors and industries

Resources and Energy

Iceland has few mineral resources. In the past, sulfur was mined, as well as a few years ago diatomite from the lake Mývatn. For environmental reasons, the factory was closed. Cement is one of the few natural resources in Iceland processed directly. Concrete is used as a building material, for private houses.

The existing abound hydropower and geothermal energy sources are exploited more and more. Until now, almost 90 % of the population has a geothermal heating. The water power is converted via a variety of water power plants into electric energy. By far the largest is the Kárahnjúkavirkjun ( 690 MW), which was built in the north of Vatnajökull. Other major power plants are Búrfell (270 MW), Hrauneyjarfoss (210 MW), Sigalda (150 MW), Blöndulón (150 MW) and more. It has already been thinking about current via a submarine cable to continental Europe to export. Due to the excess of electrical energy is also energy-intensive industries such as built as aluminum and ferrosilicon production, including by foreign investors.

Aluminum production

The cost due to natural sources such as hydropower and geothermal energy in Iceland had aluminum works are created, because the production of aluminum by means of electrolysis and requires huge amounts of electrical power. The raw material for it - the bauxite - is transported among other things, from Australia to Iceland to cheap to produce aluminum from it. There are already several aluminum plants in Iceland:

• In Straumsvík on the Reykjanes Peninsula near Hafnarfjörður
• In Grundartangi in Hvalfjörður
• At Reyðarfjörður the work Fjarðarál Alcoa in East Iceland
• Another is planned in the near Húsavík.

In addition, the cabins plan their production capacity in the coming years to further expand. The large aluminum plants contribute to economic output in Iceland, hundreds of jobs in Iceland created and also attract many foreign workers.

Transport

Much of the transport in Iceland is placed from the national road network that connects most inhabited places. State- organized road construction has been ongoing since the beginning of the 19th century, and promoted on a large scale since the 1980s. The main street Hringvegur is a great ring road that circled along the coast most of Iceland, with the exception of the West Fjords. Along these roads are the most densely populated cities in Iceland. Other smaller roads connect small towns and settlements in the interior, some slopes lead in the summer through the highlands. Another tunnel in order to shorten long travel times slowly built. So the Hvalfjarðargöng shortened the distance around the Hvalfjörður by about 50 km.

Scheduled flights are conducted by Iceland to Europe and North America. There are two national airlines Icelandair ( also one of the largest employers in the country ) and Iceland Express. The domestic flights between major cities are carried out by Flugfélag Íslands and are important for rapid progress in Iceland.

Transport by ship is almost exclusively used for the transport of goods, although signs of a shift on the streets here. The most important ferry exists between the mainland of Iceland Þorlákshöfn and the Vestmannaeyjar ( Westman Islands) and takes about 3 hours. A new ferry terminal in the south of Iceland was completed in 2010 and shortened the crossing at about 25 min, however, the ferry still often from the port of Þorlákshöfn because the new harbor silted up by the steady surf on the south coast again and again and can no longer be approached. Another ferry there to Stykkishólmur and the West Fjords.

In Iceland, there is currently no rail network, although always had a railway connection between Keflavík International Airport and Reykjavík in conversation.

Financial Services

Banks

Iceland currently has three large bank companies - Íslandsbanki, Landsbanki and Arion Bank. The assets of these three large banks correspond to about ten times the annual Icelandic GDP. In comparison, corresponded to the end of September 2008, the debt burden of the three banks nine times the entire Icelandic GDP. On 29 September 2008, the third largest bank Glitnir was nationalized; the government took 75 percent of all shares. On 6 October 2008, the Prime Minister Geir Haarde announced a state of emergency law on the nationalization of three major banking companies.

The company Sparisjóðabanki Íslands ( Icebank ) is an umbrella company for 29 local savings banks. All of these companies are listed on the Iceland Stock Exchange ( Kauphöll Íslands ).

The banks are in the mutual competition and operate branches and ATMs throughout the country. Each of the three major banks managed about a quarter of the savings of the country, the last quarter is managed by the savings banks and postal giro system. Due to high inflation, a large part of the money than time deposits, demand deposit and not as applied. Since the liberalization of interest rate policy in 1986, the competition among banks has intensified dramatically to customers.

All four banks have offices in major U.S. and European financial centers, but so far no foreign bank has not made ​​an attempt to gain a foothold on the Icelandic market.

In order to avoid a national bankruptcy took over the government of Iceland in October 2008, the control of all three major banks and adopted emergency laws. However, the government could not comply with an order to pay over 750 million euros already on 15 October 2008, whereby the island state was declared insolvent.

Stock market

Due to high inflation, the traditional function of the fish production and the nationalization of the banking sector, the stock market has been slow to develop in Iceland. The Iceland Stock Exchange Kauphöll Íslands ( ICEX ) was founded in 1985. Trading in Icelandic bonds began in 1986 and equity trading in 1990. The total trading of stocks, bonds and mutual funds is channeled through the stock exchange.

The ICEX used since its creation an electronic trading system. Since 2000, a composite trading system of the NOREX alliance will SAXESS used. Currently there are two stock markets are listed on the ICEX. The main market is larger and better known. The alternative market is less regulated OTC market. Many Icelandic companies from different sectors are listed on the stock exchange. Due to the limited size of the Icelandic market, however, relatively few transactions are denominated.

The main stock index is the ICEX 15

Other financial markets

Traditionally, investors in Icelandic bonds restrained, due to high inflation and high fluctuations of the Icelandic krona. However, have existed bonds that were issued by the government. The bond market has boomed in recent years, but mainly because mortgages were converted into bonds.

The conditions for a market for the fund on ICEX would be present, but it is offered no such bond until now. A small market for derivatives has existed up to 1999, but was closed due to the low sales.