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2005 OECD Economic Surveys: Iceland 2005

image of OECD Economic Surveys: Iceland 2005

This 2005 OECD Economic Survey of Iceland examines key economic challenges Iceland will face in coming years. In particular, it looks at the effects of planned large-scale investments in power-intensive industries. As always, the report provides a comprehensive overview of the macroeconomic situation and outlook, monetary management, and the fiscal stance. The chapter on structural policy looks at employment and environmental issues Iceland will face as a result of the large investments in power-intensive industries. The final chapter discusses the current state of product market competition in Iceland, including the legal and regulatory framework, and suggests directions for further improvement.

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Macro Policies to Maintain Economic Balance

This chapter discusses the factors driving the current expansion, the economic outlook and the macroeconomic policy settings in place to maintain economic stability. The recovery from the mild 2002 recession has been stronger than expected as the stimulatory effect of the large-scale aluminium-related investment projects has been reinforced by buoyant household demand. With the economy projected to continue to grow at a rapid pace over the next two years, there is a clear risk that tensions and imbalances – in particular inflation pressures and a large external deficit – of a magnitude similar to those that caused the previous downturn...

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