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Iceland Economic Outlook Remains Positive Despite Recession In Q2

Iceland's economic growth outlook is still positive despite a technical recession in the second quarter due to the volatility of trade, Stephen Brown, an economist at Capital Economics, said.

Gross domestic product fell a seasonally adjusted 1.1 percent sequentially in the second quarter, the second consecutive quarterly contraction, official data showed on September 8.

"But Iceland's data tend to be extremely volatile, so it is probably a less meaningful definition for Iceland," Brown observed.

The economist further noted that the breakdown was fairly encouraging, citing the pick up in quarterly spending growth to 3.3 percent from 1.8 percent in the previous quarter.

Gross fixed capital formation recovered strongly by 7.7 percent and exports by 4.3 percent.

The main reason that GDP growth was negative is that imports surged by 13 percent.

Looking ahead, a strong labor market and subdued inflation subdued inflation has helped to keep consumer confidence high, which bodes well for GDP growth, Brown said.

Besides this, the króna has weakened in recent months, which will provide some relief for exporters.

"That said, the króna remains strong and we expect it to rise again before long," the economist said.

Brown added that the short-term outlook for monetary policy is likely to be determined by movements in the exchange rate.

Capital Economics expect the króna to rise again soon that can lead to one more rate cut this year.

"We suspect that will mark the end of the recent loosening
cycle; we forecast no changes in interest rates in 2018," Brown said.

by RTT Staff Writer

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