Market Report, "Iceland Business Forecast Report Q1 2014", published

The negative consequences of Iceland's decision to end its EU membership talks have been extremely limited. The country remains a member of the European Economic Area, and already enjoys high levels of political stability. We see little prospect of a policy reversal by the government on accession, and expect the administration to build on existing global trade links. Ongoing development of economic relations with China could yet yield significant investments.

Real GDP growth will be slightly above the long-term trend at 2.5% over our 10-year forecast period. This rate of economic expansion will be amongst the fastest for any developed nation, but it will still take until 2015 for real GDP to reach pre-crisis levels.

Full Report Details at
- http://www.fastmr.com/prod/759030_iceland_business_forecast_report_q1_2014.aspx?afid=304

The government's planned US$1.25bn mortgage debt relief package will not be a panacea. The previous administration's previous rounds of relief did not spark significant extra consumer spending or investment in housing. The new plans will help unwind asymmetries within the economy, but will need to be accompanied by new foreign direct investment.

Major Forecast Changes

We have slightly revised down our long-term real GDP growth forecasts. We now expect trend growth to be 2.5% instead of the 2.6% forecast last quarter. This is primarily a result of a reduction in the early part of the forecast period, with economic expansion in 2014 now forecast to be 2.6% instead of 3.2%. This reflects the continued slow pace of investment spending growth in the economy.

Key Risks To Outlook

Global economic conditions could deteriorate markedly, stifling Iceland's export-driven recovery.

If the government decides to remove the country's capital controls too soon it could result in a disorderly depreciation of the krona..

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