Stykkisholmur village in Western Iceland. (Shutterstock/Beketoff)
Iceland is preparing for a deeper recession this year amid dropping tourism arrivals and a disastrous fishing season, central bank Governor Mar Gudmundsson said.
“We are prepared for the possibility of a deeper recession, and the numbers we are getting on tourist arrivals seem to indicate that that may happen,” Gudmundsson said in an interview on the sidelines of a conference in Dubrovnik, Croatia. “There may be a fall in tourism numbers to the 2016 level and this may have a significant effect on households, but hopefully we’ll be out of this early next year.”
The bankruptcy of budget airline Wow Air delivered a blow to the Icelandic economy, prompting the central bank to cut its main interest rate by half a point to 4% last month. At the time, the central bank also said the economy will probably contract 0.4% this year. The revision comes amid a disastrous fishing season.
“We have never been as well prepared in our history to deal with adverse situation as we are now,” he said. “We have policy space, with a lot of scope to cut rate if necessary.”
The government has also said that it’s standing by to boost stimulus should it be needed, preparing to trim planned surpluses.
--With assistance from Andrea Dudik and Ragnhildur Sigurdardottir.
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