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New macroeconomic forecast: Upswing shows no signs of abating

The new macroeconomic forecast from Landsbankinn Economic Research expects continued robust economic growth throughout the forecast period of 2017-2020, despite indications that the economic upswing is close to peaking.

The new macroeconomic and inflation forecast is published in Þjóðhagur, the annual review of Economic Research. Þjóðhagur is only published online, on Umræðan, the content and news site of Landsbankinn, and this is the first time the publication is solely available in electronic form.

The new economic forecast will be presented at a morning meeting hosted by Landsbankinn in Silfurberg, Harpa.

Economic growth to average 4% and inflation 2.7%

Economic Research expects annual economic growth in 2017-2020 to average 4%, which is much more robust than what is expected during the same period in most other developed countries. According to the forecast, economic growth will be 5.5% this year, diminishing gradually towards the forecast horizon in 2020, when 2.5% economic growth is expected. Economic Research forecasts continuous growth in private consumption throughout the period but expects industrial investment to cool down over the next two years. Investment in residential housing and public investment is on the other hand expected to increase throughout the forecast period.

The forecast assumes that inflation will slowly trend towards the Central Bank's 2.5% inflation target. Rising real estate and import prices will most likely pressure inflation up past the target around mid-2019. Inflation will average 2.7% during the period 2017-2020.

New apartments larger and price per square metre higher than for older apartments

The forecast looks at various facets of the economy, such as real estate prices, investment, private and public consumption, interest rates, the ISK exchange rate and global economic developments.

The review of real estate prices reveals that over the past two years, new apartments have become larger and have a higher per square metre price tag than older apartments. The unit price of new apartments is thus significantly higher than on older ones. As a result, an increased supply of new apartments is not likely to contribute to lower prices. Economic Research forecasts a 19% increase in real estate prices between 2016 and 2017. The market is subsequently expected to quieten down and prices to increase by 8.5% in 2018, 7% in 2019 and 6% in 2020.

Economic forecast 2017-2020 - excerpt in English