Tuesday, 12 June 2012

Still some way to go

A slightly longer time series than in the previous post. Apparently, Iceland has still some way to go when it comes to clawing back the lost economic ground.

Nominal GDP in Iceland, expressed in Special Drawing Rights (the IMF "currency"). Even though GNP in kronas is making its comeback, the same can't really be said about the value of that GNP in foreign currencies. The trend line is for the period 1971 - 2001 (on average, 0.19 billion nominal SDRs added to GNP each year).

So had we followed the trend from 1971 - 2001, we would be producing 8,0 billion SDRs worth of goods and services. Instead, we're at the 7.2 billion mark. And my guess is that we wouldn't be fighting as severe debt bubble at the same time as well.

What I find amazing however is that the trend up to 2001 is linear, which means that the annual growth must have been falling during the time period (otherwise we would see an exponential trend in the GNP data). Notice also that the data above is not corrected for population growth or inflation of SDRs.

When that is taken away, the long term economic performance of Iceland doesn't seem that impressive any more. But I haven't compared this to e.g. OECD or Scandinavian countries or other peers. So I'm going to say the Icelandic performance is bad until I've seen how the performance of other economies is, maybe they are just as defective.

Real GNP in Iceland per capita (nominal GNP corrected for inflation of SDRs and population growth). The trend line is again for the same period as before, i.e. 1971 - 2001. Also, the deflator of SDRs is estimated by using the G7 inflation index published by OECD.

If the data here are roughly correct, the real value of GDP per capita in Iceland in SDRs, i.e. in foreign currencies, is back to its early 1990s level. The debt bubble and the consequential financial crisis wiped out 20 years of economic progress. This is what the Minister of Finance/Agriculture/Fisheries called "throughout confirmation" of the return of economic health.

In the meanwhile, the Central Bank thinks the best way to fight a balance sheet recession is to raise the interest rates!

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