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2004 OECD Economic Outlook, Volume 2004 Issue 2

image of OECD Economic Outlook, Volume 2004 Issue 2

OECD's December 2004 assessment of economic developments and prospects.  In addition to the regular economic assessments and statistical information, this issue includes articles examining oil price developments and savings behaviour and the effectiveness of fiscal policy.

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Iceland

The economic expansion has continued to gather momentum, broadening from buoyant domestic demand to exports. Even though the economy has not yet entered the most intensive phase of the large-scale aluminium-related investment projects and the labour market is still relatively weak, a sizeable external deficit and inflation pressures have re-emerged. Further substantial interest-rate increases will be needed to prevent a recurrence of the overheating that took place at the turn of the century. A tight fiscal stance during the investment boom is essential, as it would alleviate the burden on monetary policy to safeguard price stability without the need for excessively high interest rates, upward pressure on the exchange rate and a squeeze on the exposed sector of the economy. Planned tax cuts should therefore be postponed. ...

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