Iceland: Economy slows after growth spurt
Iceland’s economy has boomed since joining the European Economic Area in 1993 brought market-based reforms. The economy has diversified, but now the government wants to rein growth in. That’s hit the stock market.
For such a small nation, Iceland's economic performance over the past five years has been amazing. On virtually any measure - income per capita, productivity, health, life expectancy, literacy - it comes at or near the top of the rankings. All this has been achieved in a remarkable turnaround since the early 1990s. The 1970s and 1980s were not a happy time for Icelanders. The economy was largely state-owned and managed, with relatively high unemployment, and over-reliance on the fishing industry. Since then the growth of alternative industries has been marked, although fishing is still the most important source of overseas earnings. Inflation has been brought under control, growth has been consistently healthy and unemployment is low.
Economic alliances have been a major factor. In 1993, Iceland became a member of the European Economic Area (EEA), giving its exporters free access to the lucrative EU markets and ushering in a fundamental restructuring of the economy. "Joining the EEA was a very good step to take," says Tryggvi Herbertsson, director of the institute of economic studies at the University of Iceland in Reykjavik. "Membership caused us to introduce a lot of reforms. We can certainly attribute a good deal of our subsequent success to that agreement."