June's AI-picked stock updates now live. See what's new in Tech Titans, up 28.5% year to date.Unlock Stocks

UPDATE 2-Iceland falls deeper into recession in Q1

Published 06/08/2009, 05:57 AM
Updated 06/08/2009, 06:00 AM
DANSKE
-

* Iceland GDP shrinks 3.9 percent year-on-year

* GDP contracts 3.6 percent quarter-on-quarter

* Govt deficit at 6.9 percent of GDP in Q1-stats office

(Adds analyst comment, detail)

By Niklas Pollard and Veronica Ek

STOCKHOLM, June 8 (Reuters) - Iceland moved deeper into recession in the first quarter with the economy shrinking at an annual pace of 3.9 percent as the collapse of the North Atlantic island's main banks last year reverberated through the economy.

Gross domestic product (GDP) shrank 3.6 percent in the first quarter from the fourth, the statistics office said in a statement. The annual fall in the fourth quarter was revised to 1.5 percent from an initially reported 1.3 percent decrease.

Iceland is in the clutches of what is expected to be its worst ever recession following the collapse of its oversized commercial banks and of its currency in October last year.

The government is forecasting the economy will contract at a rate of more than 10 percent this year while the unemployment rate, which stood at virtually zero ahead of the crisis, is seen climbing to nearly as much amid mounting corporate bankruptcies.

Considering the scale of the island's financial meltdown, the GDP figures were rather upbeat, an analyst said.

"That's actually not that bad, relative to what has happened in Iceland," Danske Bank economist Lars Christensen.

"It is a reletively good number, in terms of what we're seeing in other meltdown economies."

By comparison, the economies in the Baltic region have suffered far greater contractions due to the global downturn with Latvian gross domestic product tumbling a full 18 percent year-on-year in the first three months of the year.

But Iceland's public finances bore greater evidence of the financial collapse with the government running a deficit of 6.9 percent of GDP in the first quarter compared to a 5.5 percent surplus a year ago, the statistics office said separately.

The financial implosion left the volcanic island's economy dependent on a multi-billion dollar bailout tailored by the International Monetary Fund and painful budget cuts are in store in order to slash the surging government deficits.

Iceland took a step toward cleaning up the mess left by the downfall of its banks at the weekend, striking a deal to reimburse Britain and the Netherlands for billions of pounds and euros owed to savers with Icelandic accounts.

The central bank has also carried out a string of rate cuts in recent months, despite IMF warnings against premature easing of monetary policy, and said that capital controls introduced last year might be loosened late this year. (Additional reporting by Mia Shanley and Victoria Klesty; editing by Stephen Nisbet)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.