Icelandic Economy Sinks Further Into Recession In Q2

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Iceland's gross domestic product dropped 2% in the second quarter from the previous quarter, the statistical office reported Friday. In the first quarter, the economy contracted 5.9%, revised from a 3.6% shrinkage reported earlier.

Several main components revealed declines. Total domestic expenditure decreased 4.3%, household final consumption dropped 1.2% and gross fixed capital formation fell 2.2%. Meanwhile, government final consumption increased 0.5%. Exports rose 0.4%, while imports fell 4.4%.

On a year-on-year basis, the Icelandic economy shrunk 6.5% in the second quarter, worse than the 4.5% decline in the first three months of the year. The first quarter decline was initially reported as 3.9%.

On September 2, the Organization for Economic Co-operation and Development said Iceland's recession is likely to be deeper this year than in most developed economies. The Paris-based think-tank expects Iceland's economy to contract around 7% this year followed by a gradual recovery next year.

On Thursday, the OECD said the global recovery from the recession is likely to arrive earlier than expected. However, the pace of activity will remain weak well into next year.

The economic situation in Iceland turned for the worse when the country's three main banks, Glitnir, Kaupthing and Landsbanki, collapsed in October last year. In addition, capital markets seized up and financial relations with foreign countries were shut down.

In August, the Central Bank of Iceland maintained its policy interest rate at 12% for the second straight month. The Sedlabanki has lowered the rate four times this year from a record 18%.

(Market News Provided by RTTNews)