This essay critically evaluates the economic performance of Iceland as of 2006. Iceland had an economy, that was primarily capitalistic, with an extensive welfare system that includes generous housing subsidies. The economy was characterized by a low unemployment and an even distribution of income…
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This essay provides a thorough economic analysis of the economic developments in the Icelandic economy in the year of 2006.
Ii is shown in the essay, that the national economy depended heavily on the fishing industry, which provided more than 60% of total export earnings and employs 12% of the work force.
Iceland’s economy had been diversifying into manufacturing and service industries in the last decade and new developments in software production, biotechnology, and financial services were taking place. The tourism sector was also expanding, with trends in eco-tourism such as whale watching, hiking, and nature tours growing steadily.
As Iceland had focused on leveling its financial landscape and opening its markets, it had created an imbalance in the economy. The resulting volatility threatened a return to the previous days of economic overheating.
The employment numbers were good, but any disruption of current output woull change that immediately. Inflation, driven by overheating real estate and investment markets, was growing. These issues had to be resolved immediately. Through prudent monetary policy, inflation could be tamed. By implementing wise fiscal policy, expenses and debt could be reduced.
In terms of fiscal policy, Iceland needed to adjust its approach so that the monetary policy could be adequately supported without resorting to continued and severe hikes in the interest rate. Simply, this meant tightening its budget maintenance, reducing its debt, and enhancing the environment for investment
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