Iceland

This country note provides an overview of the key characteristics of the education system in Iceland. It draws on data from Education at a Glance 2023. In line with the thematic focus of this year’s Education at a Glance, it emphasises vocational education and training (VET), while also covering other parts of the education system. Data in this note are provided for the latest available year. Readers interested in the reference years for the data are referred to the corresponding tables in Education at a Glance 2023.

The economy has expanded fast until recently, driven by a rapid recovery of foreign tourism and strong domestic demand. Growth is expected to slow gradually in the course of 2023 amidst tighter financial conditions.

Immigration has increased rapidly since the late 1990s, driven largely by strong economic growth and high standards of living. By mid-2023, foreign citizens made up around 18% of the population. This has brought important economic benefits to Iceland, including by boosting the working age population and helping the country to meet labour demands in fast-growing sectors. However, there are important challenges regarding the integration of immigrants and their children that need to be addressed through a comprehensive approach, helping to make the most of immigration. Successful labour market integration of immigrants requires more effective language training for adults and an improvement in skills recognition procedures. At the same time, immigrants need more opportunities to work in the public sector and the adult learning system should be adjusted to better encompass their training needs. Strengthening language skills is key to improving the weak educational outcomes of immigrant students. Enhancing teachers’ preparedness to accommodate students’ diverse educational needs is another pre-requisite. Strengthening integration further hinges upon meeting the housing needs of the immigrant population, including through an increase in the supply of social and affordable housing.

This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examination of the economic situation of member countries.

Iceland’s economy is one of the fastest-growing of the OECD, driven by foreign tourism and strong domestic demand. The labour market is tight and wage growth robust, while high wage compression helps maintain a highly egalitarian economy. Inflation is persistent and broadening, and inflation expectations have de-anchored. The fiscal stance is tightening but more could be done to dampen inflationary pressures and support monetary policy. Labour market imbalances are rising. While progress has been made to remove barriers to the entry of firms in the tourism and construction sectors, barriers remain high in other sectors. Structural reform could help raise productivity notably in the domestic sector, while also contributing to disinflation. Higher and broader taxation of greenhouse gas emissions, coupled with investment in cost-effective actions, would help to efficiently achieve further emission cuts.

La croissance économique refluera à 4.4 % en 2023 et à 2.6 % en 2024. La consommation privée ralentira sous l’effet de la modération des salaires. Il en sera de même pour l’investissement des entreprises à mesure que les conditions financières continuent de se durcir, tandis que l’investissement public progressera à peine. En revanche, à court terme, l’investissement en logements se redressera et compensera la demande non satisfaite. La croissance des exportations marquera le pas, compte tenu de la croissance modeste enregistrée par les principaux partenaires commerciaux de l’Islande. Le taux de chômage se hissera progressivement aux alentours de 4.5 % d’ici la fin de 2024. L’inflation globale devrait reculer et passer de 10 % environ au début de 2023 à quelque 3 % d’ici à la fin de 2024.

Economic growth will come down to 4.4% in 2023 and 2.6% in 2024. Private consumption will slow as wages moderate. So will business investment as financial conditions continue to tighten, and public investment will barely grow. In contrast, residential investment will pick up in the near term to work off pent-up demand. Export growth will slow given only modest growth in major trading partners. The unemployment rate will gradually rise towards 4.5% by the end of 2024. Headline inflation is expected to decline from around 10% in early 2023 to around 3% by late 2024.