Economy of Iceland

Iceland has a highly developed social market economy. Its economy has grown over time.

In 2011, the total value of everything made and sold in Iceland, called the gross domestic product or GDP, was US$12 billion. By 2018, this grew to US$27 billion, and by 2025, it reached US$35 billion.

Iceland bonds had an Inverted yield curve in 2008 10 year bonds 5 year bonds 2 year bonds

In 2025, Iceland had one of the highest incomes in the world. The country also did well in measures of health, education, and living standards.

Iceland uses a lot of natural energy. All of its electricity comes from renewable energy like geothermal and hydropower. Even though the economy faced a big crisis from 2008 to 2011, it recovered strongly, helped by growth in tourism. Today, Iceland continues to grow and stay strong.

History

Main article: Economic history of Iceland

In medieval Iceland, people traded goods with each other. Iceland was a poorer country in Europe when the 20th century began. After World War II, the economy grew fast. This growth was helped by support from other countries and the inclusion of Iceland in the Marshall Plan.

Fishing became very important to Iceland's economy in the late 1800s. During World War II, Iceland's economy improved because of support from countries like the United Kingdom and the United States. By the 1990s, Iceland was called the "Nordic Tiger" because of its strong economy.

The 2008 financial crisis caused problems. Banks made risky loans, and the country's money lost value. With help from the International Monetary Fund, Iceland's economy recovered by 2015.

Geography and resources

Iceland is a country with a land area of 103,000 square kilometers and a coastline that stretches for 4,790 kilometers. Because of its mountainous and volcanic landscape, only a small part—about 0.7%—of Iceland’s land can be used for farming.

Iceland doesn’t have many mineral resources. In the past, people mined sulphur and took diatomite from Lake Mývatn, but these are no longer major activities. Today, most of Iceland’s energy comes from renewable sources like hydroelectric and geothermal power. About 85% of the country’s total energy and nearly all of its electricity come from these clean sources.

The biggest hydroelectric power station is the Kárahnjúkar Hydropower Plant. Iceland also has other smaller power stations and is looking into ways to use its energy to support industries like aluminium smelting.

Sectors

Alcoa's aluminium plant in Reyðarfjörður, Iceland

In 2017, Iceland exported seafood, aluminium, and many goods. Tourism became a big part of Iceland's economy, making up more than 12% of the country's GDP in 2017. The number of tourists visiting Iceland grew a lot from 2010 to 2018.

Iceland makes a lot of electricity from its geothermal and hydroelectric power. This strong supply of power helped grow the manufacturing sector, especially making things like aluminium. Fishing has also been very important to Iceland's economy, but tourism has now become even more important.

Data

The table below shows important economic numbers from 1980 to 2017. When inflation is below 2%, it is shown in green.

Year	GDP (Bil. US$ PPP)	GDP per capita (in US$ PPP)	GDP (Bil. US$ nominal)	GDP growth (real)	Inflation rate	Unemployment	Government debt (% of GDP)
1980	2.5	10,686	3.4	5.7 %	58.5 %	0.3 %	n/a
1981	2.8	12,032	3.5	4.3 %	50.9 %	0.4 %	n/a
1982	3.0	12,868	3.3	2.2 %	51.0 %	0.7 %	29.1 %
1983	3.1	12,931	2.8	−2.2 %	84.3 %	1.0 %	30.9 %
1984	3.3	13,815	2.9	4.1 %	29.2 %	1.3 %	32.6 %
1985	3.5	14,630	3.0	3.3 %	32.3 %	0.9 %	32.1 %
1986	3.8	15,733	4.0	6.3 %	21.3 %	0.7 %	30.0 %
1987	4.3	17,273	5.6	8.5 %	18.8 %	0.4 %	27.4 %
1988	4.4	17,553	6.1	−0.1 %	25.5 %	0.6 %	30.7 %
1989	4.6	18,148	5.7	0.3 %	14.5 %	1.7 %	35.4 %
1990	4.8	18,884	6.5	1.2 %	15.5 %	2.6 %	35.6 %
1991	5.0	19,180	6.9	−0.2 %	6.8 %	2.5 %	37.7 %
1992	4.9	18,763	7.1	−3.4 %	4.0 %	4.2 %	45.5 %
1993	5.1	19,265	6.2	1.3 %	4.1 %	5.3 %	52.4 %
1994	5.4	20,239	6.4	3.6 %	1.6 %	5.3 %	54.9 %
1995	5.5	20,610	7.1	0.1 %	1.7 %	4.8 %	58.2 %
1996	5.9	21,834	7.4	4.8 %	2.3 %	3.7 %	55.4 %
1997	6.3	23,084	7.6	4.9 %	1.8 %	3.7 %	52.2 %
1998	6.8	24,678	8.5	7.1 %	1.7 %	2.9 %	43.9 %
1999	7.2	25,721	9.0	3.9 %	3.2 %	2.0 %	39.2 %
2000	7.7	27,098	9.0	4.6 %	5.1 %	2.2 %	37.5 %
2001	8.2	28,481	8.2	3.9 %	6.4 %	2.3 %	42.8 %
2002	8.3	28,886	9.3	0.6 %	5.2 %	3.1 %	39.4 %
2003	8.7	29,939	11.4	2.4 %	2.1 %	3.4 %	38.4 %
2004	9.7	32,905	13.8	8.1 %	3.2 %	3.1 %	33.0 %
2005	10.6	35,374	16.9	6.4 %	4.0 %	2.6 %	24.7 %
2006	11.5	37,322	17.5	5.0 %	6.7 %	2.9 %	29.3 %
2007	12.9	40,892	21.7	9.4 %	5.1 %	2.3 %	27.3 %
2008	13.4	41,867	18.1	1.7 %	12.7 %	3.0 %	67.1 %
2009	12.6	39,657	13.2	−6.5 %	12.0 %	7.2 %	82.3 %
2010	12.3	38,594	13.8	−3.6 %	5.4 %	7.6 %	87.8 %
2011	12.8	40,022	15.2	2.0 %	4.0 %	7.1 %	94.7 %
2012	13.2	41,005	14.8	3.9 %	5.2 %	6.0 %	92.1 %
2013	13.9	42,953	16.1	4.3 %	3.9 %	5.4 %	84.3 %
2014	15.6	46,239	17.9	2.2 %	2.0 %	5.0 %	81.8 %
2015	16.3	49,470	17.5	4.4%	1.6 %	4.0 %	67.6 %
2016	17.9	53,986	20.8	7.5 %	1.7 %	3.0 %	52.4 %
2017	19.2	56,904	24.7	4.1 %	1.8 %	2.8 %	40.9 %

External trade

Iceland's economy depends on selling goods to other countries. The biggest exports are fish and other sea products. Iceland also sells aluminum, special metals, fishing machinery, software, and woolly items. Most of these goods go to the European Union, European Free Trade Association countries, the United States, and Japan.

The main things Iceland buys from other countries are machines, petroleum products, food, and clothing. Cement is the most imported item. Iceland buys a lot from Norway, the Netherlands, Germany, Denmark, the United States, the United Kingdom, PRC China, and Sweden.

The fishing industry is very important for Iceland. It gives a lot of money from exports and provides jobs for many people.

Economic agreements and policies

Iceland joined a group of countries called the European Free Trade Association in 1970. In 1973, it made a deal to trade freely with the European Community.

Starting in 1994, Iceland agreed to let money, people, products, and services move easily between itself, Norway, Lichtenstein, and European Union countries. Some people in Iceland do not want to join the European Union because they worry about losing control of their fishing.

Iceland also has trade deals with countries outside this group. The biggest one is with the Faroe Islands, allowing them to trade farm products freely. In 2013, Iceland made a trade deal with China. This was the first time China made such a deal with a western country. Iceland also made a trade deal with Mexico in 2000.

Currency and monetary policy

Main article: Icelandic króna

Exchange rate for the krona to the euro from 2000 to mid-2010

Iceland's money is called the króna. It is made and controlled by the Central Bank of Iceland. The bank started in 1961.

In the 1970s, Iceland had trouble when oil prices went up a lot. This made prices rise fast. Later, the economy grew, but it slowed down again. In 2008, there was a big problem with money, and the króna lost value compared to other currencies like the euro and the US dollar. Since then, the value of the króna has become more stable. Iceland works closely with Europe but still uses its own money, not the euro.

Growth

Iceland's economy was growing in many areas during the 1990s, including manufacturing, service industries, software production, biotechnology, insurance, and other financial services. The tourism sector was also getting bigger, especially with more people interested in ecotourism and whale watching.

In 2008, Iceland's economy faced a big challenge during the Great Recession. Even though there was some growth later that year, the overall size of the economy still got smaller by the end of 2009.