Economy of Iceland

Iceland has a highly developed social market economy. Its economy has grown over the years. 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, with the fifth highest GDP per person at $91,000. The country also topped a list measuring human development, which looks at health, education, and living standards.

Iceland uses a lot of natural energy sources, with 100% of its electricity coming 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 directly with each other. Iceland was one of the poorer countries in Europe when the 20th century began. However, after World War II, the economy grew quickly. 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.

However, the 2008 financial crisis caused big 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 mostly mountainous and volcanic landscape, only a tiny 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. In fact, 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, which can provide a lot of power. 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's exports included seafood, aluminium, tourism, and other goods. Tourism became one of the largest parts of Iceland's economy, making up more than 12% of the country's GDP in 2017. The number of tourists visiting Iceland grew by 378% 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 that need a lot of power, like aluminium. Fishing has also been very important to Iceland's economy, but tourism has now become even more important.

Data

The following table shows the main economic indicators from 1980 to 2017. Inflation under 2% 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 relies a lot 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. In 2020, the value of Iceland's exports was $7.43 billion.

The main things Iceland buys from other countries are machines, petroleum products, food, and clothings. Cement is the most imported item. In 2020, the value of imports was $7.55 billion. Iceland buys a lot from Norway, the Netherlands, Germany, Denmark, the United States, the United Kingdom, PRC China, and Sweden. Some foods, like raw meat, have special rules that make them hard to import.

The fishing industry is very important for Iceland, giving 40% of the money from exports and providing jobs for many people. This means the economy can change a lot depending on fish prices around the world.

Economic agreements and policies

Iceland joined a group of countries called the European Free Trade Association in 1970 and made a deal to trade freely with the European Community in 1973. Starting in 1994, Iceland agreed to let money, people, products, and services move easily between itself, Norway, Lichtenstein, and European Union countries. Some 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, which 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, and it is made and controlled by the Central Bank of Iceland, which started in 1961.

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