Boston, MA -- (SBWIRE) -- 10/23/2014 -- Core Views

- The debt relief plan, passed through parliament in late May 2014, will provide a short-term boost to consumption, at the expense of deteriorating external surpluses and reduced ability to meet external debt obligations.
- The government's persistent inaction is undermining Iceland's short-term political stability, reflected in the downgrade to our proprietary political risk ratings this quarter.
- We see no clear proposal for removal of restrictive capital controls, which will continue to hamper foreign investment into Iceland, capping long-term growth potential.

Major Forecast Changes

- We have revised up our 2015 real GDP growth forecast this quarter, to 3.0% from 2.5% previously, as we believe the government's debt relief programme will provide further support to what was an already buoyant consumer story. However, we believe this stronger consumption story will undermine much of the recent improvement in the current account balance, while prolonging restrictive capital controls.

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Key Risks To Outlook

- The biggest risk to our forecast is policy trajectory, particularly in terms of how the current government chooses to deal with the country's failed banks. Any abrupt lowering of the controls would almost certainly lead to a rapid outflow of capital from the country, triggering a sell-off in the krona and a potential balance of payments crisis. We do not believe that this will happen over the next two years or so, but the potential fall-out is so large that the risk must be acknowledged.

The Iceland Business Forecast Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Iceland and is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Iceland's economic, political and financial prospects through end-2018, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

- Forecast the pace and stability of Iceland's economic and industry growth through end-2018.
- Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
- Assess the critical shortcomings of the business environment that pose hidden barriers and costs to corporate profitability.
- Contextualise Iceland's country risks against regional peers using BMI's country comparative Risk Rankings system.
- Evaluate external threats to doing business in Iceland, including currency volatility, the commodity price boom and protectionist policies.

The Iceland Business Forecast Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Business Environment and Key Sector Outlook.

Economic Outlook:

How will the Iceland economic policy-making and performance impact on corporate profitability over 2014-2018?

BMI provides our fully independent 5-year forecasts for Iceland through end-2018 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Iceland Business Forecast Report features BMI's forecasts with supporting analysis for 2014 through to end-2018, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

- Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
- BMI's comprehensive Risk Rankings system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

- Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
- Balance of Payments - trade and investment, current and capital account.
- Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
- Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
- Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
- Foreign Direct Investment - approvals, inflows and climate.
- External Debt - debt profile (short and long-term plus public and private sector exposure).

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