Iceland has a small economy and is highly unstable. From a nominal GDP of $12 billion in 2011, it has more than doubled to $27 billion in 2018. Based on population estimates of 350,000, this equates to $55,000 in purchasing power parity (PPP) terms per person.
Financial crisis-induced drops in GDP and employment were completely reversed by a rebound supported by a tourism boom that began in 2010.
Iceland Economy In Europe 2023 [Facts & History]
In 2017, tourism in Iceland contributed over 10% to the country’s gross domestic product. According to Arion Research’s economic projection for the years 2018-2020, issued in April 2018, the Icelandic economy is slowing down after a period of solid expansion.
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Iceland’s economy is a hybrid, featuring both substantial amounts of free commerce and government intervention. But public spending is far lower than in other Nordic countries. Home and commercial electricity in Iceland is primarily generated by hydropower.
Strong economic growth was initially the result of major free-market reforms implemented in the 1990s by Iceland. Because of this, Iceland is considered to have some of the best economic and civil liberties in the world. Based on the Gini coefficient’s 2007 assessment, Iceland was among the most equitable countries in the world.
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Inflation and current account deficits both started rising as an issue for the economy in 2006. The financial system grew fast in response, in part as a result of previous reforms, and then completely collapsed in a global financial catastrophe.
In November 2008, Iceland desperately needed emergency cash from the International Monetary Fund and other European countries. Starting in 2010, the economy began to show signs of improvement.
Iceland Aluminum Industry
The smelting of aluminum is Iceland’s most significant power-hungry sector. In 2019, Iceland’s three operating facilities already had a combined capacity of more than 850,000 metric tons per year (mtpy), placing it eleventh on the list of countries producing aluminum.
Straumsvk, near Hafnarfjörur, is home to Iceland’s first aluminum smelter, which is run by Rio Tinto Alcan under the plant name ISAL. In 1969, construction began on the current facility, and it has been running ever since. It was originally designed to produce 33,000 mtpy but has been extended multiple times to produce around 189,000 mtpy.
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The second facility, owned by the American Century Aluminum Company and run by its fully owned subsidiary Norurál, went into operation in 1998. It can be found in Western Iceland, in the town of Akranes, not far from Grundartangi.
There was an increase in capacity from its previous 220,000 mtpy to its current 260,000 mtpy. The plant’s 2012 output of 280,000 metric tons was worth 610 million dollars, or 76 billion krónur. In that year, 4,300 GWh, or over a quarter of the country’s total electrical output, were consumed during production.
In order to increase output by another 50,000 mtpy, Norurál announced the launch of a five-year project in October 2013.
In the area of Reynarfjörur, there is an Alcoa plant that produces aluminum for domestic and international markets. The factory, which began operations in April 2008 and goes by the name Fjardaál (which translates to “aluminum of the fjords”), has a capacity of 346,000 mtpy.
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Landsvirkjun constructed the 690 MW Kárahnjkar hydropower station to supply the facility with electricity. Compared to the size of the Icelandic economy, the project was massive, raising the country’s installed electric power capacity from about 1,600 MW to around 2,300 MW.
In 2011, the fishing industry and its ancillary businesses accounted for 27.1% of Iceland’s gross domestic product (GDP), a figure eclipsed only by the tourism industry.
Reynisfjara, Iceland, Alcoa aluminum smelter
Alcoa claims that there were no forced relocations of people during the building of Fjardaál, that there was no threat to commercial fishing, and that there was no discernible influence on the local populations of birds, seals, or reindeer. There was a lot of pushback against Alcoa’s plans to construct Fjardaál from environmental groups including the World Wide Fund for Nature.
Björk’s mother, Hildur Rna Hauksdóttir, went on a hunger strike in 2002 to protest the planned development, and Björk herself was an early and vocal opponent of the scheme.
A number of additional aluminum smelting projects are in the works. A feasibility study for a second Alcoa factory in Iceland, close to Hsavk, was done between 2005 and 2011.
Although initial projections suggested no further power sources would be necessary, it was decided that the 250,000 mtpy plant would be run solely by geothermal energy. When Alcoa decided to scrap the Bakki project in October 2011, they made the announcement public.
Nordurál inked an agreement in 2006 to buy electricity from two Icelandic geothermal power producers, Hitaveita Suurnesja and Orkuveita Reykjavkur, for its own aluminum reduction operation in Helguvk. Aluminum production of 150,000 mtpy will initially be supported by the supplied electricity, with a capacity for expansion to 250,000 mtpy.
Iceland Fish Industry
Roughly 9% of Iceland’s labor force is employed in the fisheries industry (4,900 in fishing and 4,100 in fish processing), although it is estimated that between 25,000 and 35,000 individuals (up to 20% of the workforce) rely on the ocean cluster for their livelihood.
The advanced processing of marine goods and the biotechnological manufacturing industry are two major sources of employment in the fishing industry. In comparison, aquaculture in Iceland is still a rather niche industry, employing only about 250 people and producing 5,000 metric tons annually.
Overtaking the United Kingdom in the early 1990s, Iceland is now the second-largest fishing nation in the North East Atlantic, behind Norway. Since 2006, the yearly catch in Icelandic seas has averaged between 1.1 and 1.4 million tonnes of fish, down from a high of over 2 million tonnes in 2003.
Iceland’s fishing industry has been negatively impacted by the Northeast Atlantic’s declining catch rates, which fell by 18% from 2003 to 2009 but have leveled off or begun to rise again.
With a total catch of 178,516 tonnes in 2010, cod is still the most valuable species for Icelandic fisheries. Cod catches have dropped in recent years due to quotas, so blue whiting, which is processed, has been added to the mix.
The Icelandic catch of this fish went from 369 tonnes in 1995 to a record-breaking 501,505 tonnes in 2003. Instability in the stock led to quota cuts, which lowered 2010’s catch to 87,121 tonnes.
As a result of the mild warming of the Atlantic Ocean in the 21st century, the population of Atlantic mackerel, often known as the “Miracle of the Mackerel,” has grown.
Iceland Banking Industry
After the financial crisis of 2008, the whole banking system in Iceland was redesigned. Commercial banks in Iceland have increased to three: Landsbankinn, Arion Bank (previously Kaupthing Bank), and Islandsbanki (formerly Glitnir).
Kvika banki (previously MP Straumur) is one of the smallest banks, and there are also savings banks. Smaller banks have been merged into larger ones; Sparisjodur Keflavikur was acquired by Landsbanki, while Byr was purchased by Islandsbanki.
Iceland Stock Exchange
The Iceland Stock Exchange now only features Arion Bank. In contrast to Landsbanki and Islandsbanki, which are both now entirely controlled by the State, Arion Bank is mostly owned by international creditors. Bankasysla rikisins (State Financial Investments) is in charge of the government of Iceland’s financial holdings, and it plans to privatize its position in the banks in the near future.
Equity markets evolved more slowly than in other countries because of factors like high unemployment, a monopoly on fish exports, and state ownership of commercial banks.
In 1985, the Iceland Stock Exchange was established. In 1986, trading began in Icelandic T-Bonds, and in 1990, trading began in Icelandic stocks. When it comes to Icelandic equities, bonds, and mutual funds, all trading occurs on the ICEX.
The ICEX has relied on digital trading platforms since it was established. Since the year 2000, the NOREX alliance has used SAXESS, their unified trading platform. Currently, the ICEX hosts two equity markets.
The Main Market is the more popular and larger option. Over-the-counter trading on the Alternative Market is less strictly governed. The market’s lack of scale means that it lacks the depth and breadth of larger exchanges, making trading difficult. The ICEX is home to a wide range of companies representing all corners of the Icelandic economy.
After a decade of being the worst-performing stock market index in the world, the ICEX 15 stock market index was discontinued in the wake of the financial crisis.