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Iceland 2017 OECD Economic Survey preserving sustainable-and inclusive growth

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Iceland 2017 OECD Economic Survey preserving sustainable-and inclusive growth

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Iceland 2017 OECD Economic Survey preserving sustainable-and inclusive growth

  1. 1. www.oecd.org/eco/surveys/economic-survey-iceland.htm 2017 OECD ECONOMIC SURVEY OF ICELAND Preserving sustainable and inclusive growth Reykjavik, Tuesday 27th June 2017 OECD OECD Economics
  2. 2. Iceland has made a remarkable turnaround 2 90 95 100 105 110 115 120 125 130 90 95 100 105 110 115 120 125 130 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Index 2010 = 100Index 2010 = 100 Real GDP levels Iceland Nordics (excl. Iceland) EU South (ESP, ITA, GRC, PRT) Source: OECD Analytical Database.
  3. 3. Well-being is high 3 Indicators of well-being in Iceland Work-Life Balance Education Housing Civic engagement Income Health Safety Life Satisfaction Community Environment Jobs 20% bottom performers 60% middle performers 20% top performers Iceland Country rankings (1 to 35) Country rankings (1 to 35) Source: OECD Better Life Index 2016.
  4. 4. Iceland is highly inclusive and egalitarian 4 0 0.1 0.2 0.3 0.4 0.5 0 0.1 0.2 0.3 0.4 0.5 ISL NOR DNK SVN FIN CZE BEL SVK AUT LUX SWE NLD HUN DEU FRA CHE POL KOR IRL OECD CAN ITA JPN NZL AUS PRT GRC ESP LVA GBR EST ISR TUR USA MEX CHL Gini of disposable income 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 TUR KOR JPN HUN SVK GRC CZE CHL MEX AUT ITA ISR AUS USA POL CAN LUX PRT ESP BEL EST GBR DNK LVA FRA NLD DEU CHE NZL SVN IRL SWE NOR FIN ISL ScoreScore Global Gender Gap Index Score ranges from 0 (inequality) to 1 (equality), 2016 Source: OECD Income Distribution Database; and the World Economic Forum.
  5. 5. Major imbalances have been corrected 5 • Capital controls have been essentially lifted -200 -175 -150 -125 -100 -75 -50 -25 0 25 50 -40 -35 -30 -25 -20 -15 -10 -5 0 5 10 2005 2007 2009 2011 2013 2015 % of GDP% of GDP Current account and the Net International Investment Position Underlying current account balance² (lhs) Current account balance (lhs) NIIP (rhs) Underlying NIIP (rhs) 40 50 60 70 80 90 100 150 170 190 210 230 250 270 2005 2007 2009 2011 2013 2015 %% Leverage has been reduced Households: debt to disposable income ratio (lhs) Corporate: debt to total assets ratio (rhs) Source: OECD Analytical Database; and Central Bank of Iceland.
  6. 6. Public debt is falling 6 0 20 40 60 80 100 120 2005 2007 2009 2011 2013 2015 % of GDP Public debt has been reduced Net debt Gross debt Source: OECD Economic Outlook 101 Database; and Ministry of Finance.
  7. 7. Growth is fastest in the OECD 7 • due to boom in tourism and favourable terms of trade 75 100 125 150 175 200 225 250 275 300 2010 2011 2012 2013 2014 2015 2016 2017 Exports are boosted by the tourism boom Exports of goods Exports of services Exports of tourism Index 2010 = 100, 4-quarter moving average 30 50 70 90 110 130 150 2010 2011 2012 2013 2014 2015 2016 2017 Terms of trade have been favourable Brent oil prices (in USD) Marine product prices (in foreign currency)² Index 2010 = 100 Source: OECD Analytical Database; Statistics Iceland; Central Bank of Iceland.
  8. 8. Unemployment and inflation are low 8 0 1 2 3 4 5 6 7 8 9 2005 2007 2009 2011 2013 2015 2017 % Unemployment Unemployment rate 0 1 2 3 4 5 6 7 8 2010 2011 2012 2013 2014 2015 2016 2017 Inflation Inflation Inflation target % Source: OECD Analytical Database.
  9. 9. Preserving macroeconomic stability 9
  10. 10. Rapid growth brings challenges 10 • overheating and inflationary pressures 90 100 110 120 130 140 150 2005 2007 2009 2011 2013 2015 2017 Wages, house prices and domestic demand Real house prices Real wages Final domestic demand Index 2010 = 100 Source: OECD Economic Outlook 101 Database and Statistics Iceland.
  11. 11. Fiscal policy has been too expansionary 11 -6 -4 -2 0 2 4 6 2005 2007 2009 2011 2013 2015 2017 Fiscal stance is expansionary Fiscal easing (+) / tightening (-) % pts of potential GDP Note: based on changes in underlying primary balance of general government. Source: OECD Economic Outlook 101 Database.
  12. 12. Strong and volatile króna poses challenges for many businesses 12 The króna has appreciated strongly since 2013 Broad trade index Source: Central Bank of Iceland. 50 75 100 125 150 175 200 225 250 50 75 100 125 150 175 200 225 250 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Central Bank of Iceland.
  13. 13. Inflation expectations are better anchored 13 • but based on past experience could become de- anchored again 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 2010 2011 2012 2013 2014 2015 2016 Inflation expectations 1-year breakeven inflation rate 5-year / 5-year forward inflation rate Inflation target Source: Central Bank of Iceland.
  14. 14. Recommendations for macroeconomic stability 1. Monetary policy should be ready to tighten, if inflation expectations increase once again. 2. Smooth excess short-term exchange rate volatility. Use macro-prudential tools to manage potentially destabilising short-term capital flows. 3. Fiscal policy should be contractionary to reduce the risk of overheating. 4. A sovereign wealth fund should be established and built up over time. Funds should be invested abroad and draw down limited to counteracting substantial shocks. 14
  15. 15. Making tourism sustainable and inclusive 15
  16. 16. Tourism has recorded spectacular growth… 16 International tourist numbers have risen dramatically 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 MillionMillion Source: Icelandic Tourist Board.
  17. 17. … and has become a major export earner 17 Tourism is now a major export earner Share of goods and services exports, % Source: Statistics Iceland. • And created many jobs 0 10 20 30 40 50 60 0 10 20 30 40 50 60 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 %% Marine Energy intensive Tourism Source: OECD Analytical Database.
  18. 18. It also creates challenges – pressures on society 18 House prices have risen and affordability can be a challenge 32 33 34 35 36 37 38 39 40 41 OECD avg. Iceland Rent expenditure % of disposable income in the bottom quintile of the income distribution Source: OECD Affordable Housing Database and OECD Analytical database. 90 100 110 120 130 140 150 160 2006 2008 2010 2012 2014 2016 House price Real house price Index 2010 = 100
  19. 19. Environment needs to be preserved 19 Most visitors come to experience nature % of respondents noting different reasons for visiting Iceland 0 10 20 30 40 50 60 70 80 Nature Always wanted to visit Attractive price or low airfare Culture/history Birthday or other special event Spa & welness Stopover Work related Friends/relatives Other Source: Icelandic Tourist Board Ferdamalastofa (2016).
  20. 20. Recommendations for sustainable tourism 1. Establish an inter-ministerial tourism strategy focused on making tourism environmentally, socially and economically sustainable. Include non-government stakeholders. 2. Remove current tax subsidies for tourism-related activities, by taxing them at the standard VAT rate and broadening the base to excluded services. 3. Limit the number of visitors to fragile sites. 4. Introduce user fees to manage congestion and pressure on the environment. 20
  21. 21. Recommendations for sustainable tourism 5. Subject infrastructure investment to cost-benefit analysis, including consideration of social and environmental impacts. 6. Ensure transport and tourism policy are consistent. 7. Improve the economic analysis of tourism activity, with better data and research. 8. Use vocational and on-the-job training to build skills in the tourism workforce. 21
  22. 22. Effective and inclusive labour relations 22
  23. 23. Labour market is flexible and inclusive 23 • Participation is high and unemployment low 0 20 40 60 80 100 BEL POL ITA HUN SVN FRA GRC LUX ISR PRT TUR FIN SVK IRL CHL USA KOR LVA OECD AUT EST NOR ESP CZE DNK CAN MEX DEU AUS GBR SWE NZL NLD JPN CHE ISL Participation rates of men % of 15-64 year-old, 2015 0 20 40 60 80 100 TUR MEX ITA CHL KOR GRC POL HUN IRL BEL OECD SVK LUX CZE JPN USA FRA SVN ISR ESP PRT AUT AUS GBR LVA EST DEU NZL CAN FIN NLD DNK NOR CHE SWE ISL Participation rates of women % of 15-64 year-old, 2015 Source: OECD Labour Force Statistics.
  24. 24. Iceland is highly unionised 24 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 EST TUR HUN KOR USA FRA CZE POL LVA MEX SVK CHL CHE ESP AUS OECD JPN NLD DEU NZL PRT SVN GRC ISR GBR CAN IRL AUT LUX ITA NOR BEL FIN DNK SWE ISL %% Union density 2015 or latest year available Source: OECD Analytical Database.
  25. 25. There are recurrent bursts of social tensions 25 Real wages • Large wage awards hurt competitiveness 90 100 110 120 130 140 150 160 170 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Index 1995 = 100 50 75 100 125 150 175 200 1994 1997 2000 2003 2006 2009 2012 2015 Relative unit labour costs Iceland Denmark Finland Norway Sweden Index 2010 = 100 Source: Statistics Iceland; and OECD Analytical Database.
  26. 26. Trust has been undermined 26 1 5 9 13 17 21 25 29 2007 2009 2011 2013 2015 Trust in politicians¹ has been significantly undermined DNK FIN NOR SWE ISL OECD ranking 5.0 5.2 5.4 5.6 5.8 6.0 6.21 3 5 7 9 11 13 2007 2009 2011 2013 2015 Labour-employer relations² have deteriorated in relative terms Ranking (left) Score (right) OECD ranking Score Source: World Economic Forum. The Global Competitiveness Index dataset 2007-2016. 1. Business executives responding to the question: ‘in your country, how do you rate the ethical standards of politicians? [1 = extremely low; 7 = extremely high]’. 2. Business executives responding to the question: ‘in your country, how do you characterize labour-employer relations? [1 = generally confrontational; 7 = generally co-operative]’.
  27. 27. Recommendations for effective collective bargaining 1. To nurture trust all parties need to participate actively in the Macroeconomic Council. 2. Establish a tripartite technical committee to provide reliable and impartial information to wage negotiators. 3. Wage negotiations should begin with an agreement on “wage guidelines” for the negotiation round. State mediator (and arbitration bodies) should also base their proposals on these guidelines. 4. Increase the powers of state mediator, including the power to delay industrial action for a limited period in agreement with the social partners, in an effort to achieve a negotiated agreement. 27
  28. 28. More Information… www.oecd.org/eco/surveys/economic-survey-iceland.htm OECD OECD Economics Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. 28

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