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2006 OECD Economic Outlook, Volume 2006 Issue 1

image of OECD Economic Outlook, Volume 2006 Issue 1
OECD's twice-yearly assessment of the major economic trends and policies in member countries and selected non-members. This issue covers the outlook to the end of 2007.  Together with a wide range of cross-country statistics, the Outlook provides a unique tool to keep abreast of world economic developments. This issue also contains a special chapter on Future Budget Pressures Arising from Spending on Health and Long-Term Care.

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Iceland

Very strong growth over the past two years has led to serious overheating, as evidenced by inflation well above the official target and a soaring current account deficit. With financial markets increasingly focusing on tensions and imbalances in the economy, the currency has dropped abruptly and the Central Bank has accelerated interest rate hikes to fend off ensuing inflation pressures. Further substantial interest rate increases are needed to put inflation on a downward track toward the official target. Although government finances are in surplus, the expansionary effect of income tax cuts this year and next should be offset by spending restraint -- in particular on public-sector wages -- until there are clear signs that inflation subsides.

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