Reykjavik (IFN) The Icelandic Ministry of Finance considers it unlikely that Iceland's economy will receive a hard landing, the ministry said in weekly press release, but Standard & Poor's changed the outlook on Iceland sovereign to negative from stable on Monday.
S&P said that the change is due to growing concerns that imbalances in the Icelandic economy could lead to hard lending.
?Certainly there is a possibility that the Icelandic economy will suffer a hard landing, just like the international economy. In the view of the Ministry of Finance, however, this possibility is judged to be remote," the press release said.
The ministry's analysts said that the economy is unstable, but that it is a temporary phase. They expect that imports will reduce next year when heavy industry constructions will be completed.
They also expect exports to increase with due to tripling of aluminium potential output. Furthermore, the Icelandic krona's devaluation has had the effect that households have reduced imports of automobiles and consumer products, but preliminary reports on last month's imports support that theory.
The current-account deficit will remain substantial throughout the year, but will have been reduced by half in the next year. The inflation was brought on by real-estate price growth, the press release said, but the real-estate inflation has decreased the last few months, and predictions assume the decrees will continue.
The press release furthermore emphasised the flexibility of the Icelandic economy and said that the roots of Iceland's economy were strong, that household's assets were three times as large as their debts and that the state treasury's standing was extremely good.
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