2006 OECD Economic Surveys: Iceland 2006

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This 2006 edition of OECD's periodic survey of Iceland's economy finds strong growth but large macroeconomic imbalances. After a general review of the macroeconomic situation, the survey examines in a more detailed way implementation of monetary policy, improving fiscal management, furthering financial liberalisation, and adapting the education system to a changing environment.

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Policy challenges in sustaining improved economic performance

Iceland’s growth performance has considerably improved since the mid-1990s thanks to the widespread implementation of structural reforms. Financial-market liberalisation and privatisation, for example, have fostered entrepreneurship and investment. As a result, part of the previous relative decline in per capita GDP has been reversed over the past decade, and the country’s standard of living has remained among the highest in the OECD area. However growth has been volatile and accompanied by recurrent sizeable economic imbalances and tensions, only partly reflecting major aluminium-related investment projects. Consequently, a key challenge for policy is to enhance macroeconomic stability by ensuring an orderly unwinding of current imbalances and inflation pressures and avoiding their re-emergence in the future. Another challenge is to make sure that the financial sector continues to contribute to good economic performance by both minimising risks to stability and completing reforms in this area. Finally, the changing structure of the economy away from traditional activities like fisheries requires further efforts in the field of human resource development.

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