IMF predicts positive economic outlook for Iceland with falling inflation and growth prospects

The International Monetary Fund (IMF) has a positive outlook on Iceland’s economic prospects, according to its annual report released yesterday. The report predicts that inflation will fall to 5.1% by the end of this year and further decrease to 2.5% in the first half of 2026.

The IMF suggests that current monetary policy and public finance management are adequate. Consequently, it expects a reduction in inflation and economic growth in the short term. As the economy slows down, economic policy should ensure a soft landing, achieve the inflation target, and reduce the state budget deficit.

Inflation is forecasted to fall to 5.1% by the end of the year, currently standing at 5.8%. It is expected to decrease to 2.5% in the first half of 2026.

The political austerity policy is said to have reduced domestic and international imbalances. In the medium term, economic growth prospects are bright, with the fund predicting higher economic growth in Iceland than in other developed countries.

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

New wage agreements are considered a step in the right direction in the domestic labor market. They support lower inflation while maintaining the competitiveness of the national economy against foreign countries.

The IMF conducts regular reviews of the economic life of its member countries. A delegation from the Fund visited Iceland in May and discussed with the Icelandic authorities and other economic actors.