IMF report predicts bright economic prospects for Iceland with inflation decrease and growth surge

The International Monetary Fund (IMF) is optimistic about Iceland’s economic prospects, according to its annual report published yesterday. The report predicts a decrease in inflation to 5.1% by the end of this year and down to 2.5% in the first half of 2026.

The Fund considers the current level of restraint in both monetary and public finance matters sufficient. This restraint is expected to reduce inflation and economic growth in the short term. As the economy slows down, economic policy should ensure a soft landing, achieve inflation targets, and reduce deficits in public finance.

According to the report, the current inflation rate stands at 5.8%. However, it is expected to decline to 2.5% in the first half of 2026. The IMF suggests more restraint in public spending.

The report also states that the austerity policy has reduced imbalances domestically and towards foreign countries. In the medium term, growth prospects are bright, and the fund predicts higher growth in Iceland than in other developed countries.

Economic growth is expected to slow down to 1.2% in 2024, down from 4.1% in 2023 and 8.9% in 2022. However, growth is expected to increase to 2.4% next year.

New wage agreements are also said to be a step in the right direction in the country’s labor market. They are expected to contribute to lower inflation while maintaining the competitiveness of the national economy towards foreign countries.

The Fund regularly examines the economic life of its member countries. A delegation from the Fund was in Iceland in May to discuss with Icelandic authorities and other economic actors.