After successful completion of its IMF-supported adjustment programme, Iceland has returned to economic growth in 2011, despite the euro area turmoil. Growth is led by large energy-intensive investment projects, residential construction and private consumption expenditure, which will be spurred by high recent collective wage agreements. The unemployment rate has started to fall from high levels by Icelandic standards and should continue to decline with the pick-up of economic activity. While Iceland has made considerable progress in putting its public finances on a sustainable path, further consolidation is required, albeit less than in the countries affected by the sovereign debt crisis.