Structure

Size and income level

The Icelandic economy is the smallest within the OECD, generating GDP of EUR14.5 billion in 2007. This was a little more than 1/1000 of the US economy, 1/20 of the Danish economy, and 1/3 of the economy of Luxembourg, but almost three times larger than the economy of Malta. The small size of the Icelandic economy mainly reflects the small size of the population, which reached 313 thousand at the end of 2007.

Iceland has all the characteristics of a modern welfare state. GNI per capita measured in terms of Purchasing Power Parities (PPP) amounted to 34 thousand US dollars in 2007, the twenty-second highest in the world and the fifteenth highest among the OECD countries. In comparison with the Nordic countries, Iceland’s GNI per capita is lower than that in Denmark, Norway, Finland and Sweden, but somewhat above the EU average.

Historically, this prosperity has largely been built on Iceland’s comparative advantages in abundant marine and energy resources. More recently, the main driver of economic growth has been services, in particular the financial services sector.

Composition of output and expenditures

As in other developed economies, non-tradable services form the bulk of economic activity, accounting for approximately 67% of GDP in 2007. While the marine sector remains one of the most important sources of export revenues, its share of GDP has declined considerably in recent years, from 16% in 1980 to 6% in 2007. The most rapid growth in recent years has taken place in the finance, insurance and real estate sector, whose share of GDP has risen from 17% in 1998 to 27% in 2007.

Private consumption contributed on average about 58% of GDP in 2003-2007 and public consumption and gross fixed investment contributed 25% and 27% respectively. The investment-to-GDP ratio has risen substantially in recent years on average, after falling below 1/5 in the mid-1990s. The ratio of public consumption has also risen somewhat over the past five years, after remaining broadly stable through most of the 1990s.

Labour market

The Icelandic labour market has one of the highest participation rates among OECD countries. Over the past 10 years, it has consistently been well above 80%. This is explained partly by the fact that the rate of unemployment has normally been one of the lowest among OECD countries. The participation rate of women has also been very high by international comparison.

Economy of Iceland,Central Bank of Iceland