OECD Economic Outlook, Volume 2005 Issue 2
Twice a year, the OECD Economic Outlook analyses the major trends and examines the economic policies required to foster high and sustainable growth in member countries. Developments in major non-OECD economies are also evaluated. The present issue covers the outlook to end-2007. Together with a wide range of cross-country statistics, the Outlook provides a unique tool to keep abreast of world economic developments. In addition to the themes featured regularly, this issue contains an analytical chapter addressing the recent run-up in house prices.
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Iceland
The economy continues to show signs of overheating, as the large-scale aluminium-related
investment projects are in full swing and household demand is booming. The external deficit is
soaring and inflation exceeds the authorities’ upper tolerance limit. The major challenge for
policymakers is to ensure an orderly unwinding of the present imbalances and to prevent their
recurrence in the future.
Further interest-rate increases are probably required to put inflation on a downward track toward the official target. Avoiding a premature loosening of the fiscal stance would reduce upward pressure on interest rates and help avoid excessive exchange-rate fluctuations, thereby facilitating the stabilisation task of monetary policy.
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