Abstract
After years of robust growth, economic activity has significantly weakened. Supply disruptions in tourism, the engine of recent growth, and the associated uncertainty have triggered a drop in domestic demand and an increase in unemployment. A swift policy response, with fiscal relaxation and monetary easing, has stabilized expectations and cushioned the effects. A moderate but fragile growth recovery is expected in 2020. Significant downside risks weigh on the outlook. World trade tensions and weaker than expected global growth, the UK’s still uncertain Brexit process, worsening of tourism activity in Iceland, and pressures in financial markets or payments due to Iceland’s grey-listing by the FATF could negatively impact the economy.
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