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Is the Icelandic Króna too Strong?

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Is the Icelandic Króna too Strong?

Icelandic money

Photo: Geir Ólafsson.

Purchasing goods abroad costs Icelanders only about half of what it did two years ago, RÚV reports. This was revealed in the economic forecast of Arion Bank, which calls the strength of the króna a reason for concern.

The bank’s research department introduced its three-year economic forecast this morning, titled, “Let’s not Fly too Close to the Sun.” The bank predicts the Icelandic króna will continue to get stronger for some time.

Konráð Gíslason, economist at Arion Bank, remarked, “In the short term, it could continue to strengthen somewhat. But since we consider it having reached a higher point or become stronger than the economy can handle in the long term, then there is, perhaps, reason for some warning lights to come on.” Some kind of imbalance, he added, might be developing in the future, although the situation is good right now and there is no reason to panic.

A strong króna is worst for exporters and the tourism industry. The value of the króna has strengthened by 15 percent this year, especially in recent weeks. The bank believes it to be 10 percent stronger than it can remain for the long term.

At a meeting with the bank’s research department this morning, it was revealed that in terms of pricing, Iceland has become more expensive than Norway. Prices here are only seven percent below those of Switzerland, considered by the International Monetary Fund to be the world’s most expensive country. Thus, the value of the króna could clearly impact the stream of tourists to Iceland.

The bank predicts a strong economic growth of 4.7-5.2 percent next year, slowing down to 3.1 percent in 2018.

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