At a public meeting yesterday the Finance Ministry introduced its economic forecast for the remainder of the year, which is very different from the economic forecast recently released by the Central Bank of Iceland.
According to Thorsteinn Thorgeirsson, office manager of the Finance Ministry’s economic department, investments will decrease considerably, once the current large-scale industrial projects are completed, and private consumption will decrease slightly, as Markadurinn, a weekly Fréttabladid business supplement, reports.
Thorgeirsson said the economy will reach equilibrium towards the end of the year and the Central Bank will reach its target inflation of a 2.5 percent, which will remain within tolerance limits over the next few years.
“The contraction in national expenditure will be much greater than during the last recession and reach a size that we have never seen before,” Thorgeirsson said.
Thorgeirsson predicted that economic growth would be less than one percent this year, due to a reversal in foreign investment. Last year economic growth in Iceland was measured 2.6 percent and 5.5 percent in 2005.
He also predicted the trade deficit balance would go through a rapid recession and reach almost 16 percent of GDP by the end of the year, due to increased export of aluminum and a decrease in imports. Last year the trade deficit was 26.7 percent.
While Thorgeirsson predicted a soft landing for the economy, the Central Bank predicted a hard transition over the next two years, as the research department of Landsbanki Bank pointed out. Representatives of Landsbanki said the inherent differences in the two economic forecasts are “uncomfortable.”
In the Finance Ministry’s forecast, further large-scale industrial projects are not taken into account, which would have great impact on the economy, as Markadurinn reports.