4.1 Gross Domestic Product
Iceland’s Gross Domestic Product (GDP) per capita increased before the financial crisis in 2007 by 6,9% from 2006 (Chart 1). During the year 2008 it was -0,9% from 2007, which meant that the GDP had been negative and there was no financial growth in the country. In 2009 the GDP was -6,5% lower than the previous year. In 2010 the GDP had fallen from previous year -3%. It took until 2011 before the GDP started to grow and it was still relatively modest between 1-3% against previous year. During the year 2016 GDP per capita increased 6% compared to 2015. Even though it was difficult to get the GDP to grow because of the financial situation in Europe overall and the currency restrictions in Iceland, Iceland was able to cut the Gross Domestic Products decrease. The government could not affect much to the foreign trade or situation but only to stabilise and support the Icelandic incomes and welfare.
Chart 1. Gross domestic product per capita in Iceland, volume changes between years 2007-2016. Source:
Statistics Iceland 2018a.
-8 -6 -4 -2 0 2 4 6 8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GDP per capita, volume change on previous year
28 Iceland’s high economic growth in 2007 led to the rising inflation (shown in Consumer Price Index CPI) of 5 % (Chart 2). Financial crisis in 2008 and economic slump were tried to work out partly with currency restrictions. These currency restrictions and some other financial measures led the inflation to rise up to 12,4% in a year 2008 and was still high up to 12% in 2009 (Chart 2). These kind of inflation figures are very high to the western world economies and welfare states. European Central Bank has target inflation of 2% of year. This should cover healthy economic growth and citizens should also be able to afford the increasing prices of this figure. Rising prices has slowed in 2010 to 5,4% and 2011 to the 4%. Only in 2012 it increased to 5,2%. After this has the inflation stayed in more healthier level and after 2014 it has stayed under 2%.
Chart 2. Consumer price index in Iceland, inflation index between years 2007-2016. Source: Statistics Iceland 2018a.
What does this have to do with the basic Icelandic citizen then? Inflation means that prices are increasing to the consumers, public offices and companies. Even the inflation itself can mean that the economy is going well, and moderate price increases indicate ongoing sales, there are several downsides in inflation. High and rapidly increasing inflation means that
0 2 4 6 8 10 12 14
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Consumer Price Index (inflation)
29 prices goes up quicker than consumers salaries possible increase and they cannot buy products as much as before. This can affect to everyday life expenses such as energy, water, food, housing and clothing prices. In Iceland also the restricted currency could not flex if needed in high inflation state.
4.2 Public services
In chart 3 is studied Iceland’s total expenditures on social protection between years 2007-2013. Total expenditures have increased every year except in 2010 the expenditure was less than in year 2009. In 2007 the social protection expenditures were 281 156 million ISK and those were increased to the 326 485 million ISK. In 2009 expenditures were 381 861 million ISK (Chart 3). In two years the social protection expenditures increased over 100 000 million ISK which is 36% higher than in 2007. In 2010 the expenditures were in 379 695 million ISK and were increased in every year up to 442 993 million ISK. 2013 expenditures were over 57% times larger than 2007.
The chart 3 shows that the risk of poverty in Iceland was 10,2% of the population during 2007-2009 and was decreased to 7,9% until 2012. This meant that the risk of poverty decreased over 20% during the 2007-2012. On the other hand in 2013 there was a increase in the risk of poverty curve to 9,3% of population.
30 Chart 3. Public social expenditure (Million ISK) and risk of poverty (% of population) between 2007 and 2013.
Statistics Iceland 2018a.
During and after the financial crisis Iceland increased their support to the families which has increased the expenditure but helped the families to survive in difficult financial times. Data of the Risk of Poverty shows that the measures in Iceland have been affective because the Risk of Poverty has decreased after the financial crisis to 8% of population (Chart 3). Before and during the crisis the 2007-2010 this amount was 10%. Iceland measures and investments to population have decreased the poverty risk and the employment has increased during the same time.
Chart 4 includes detailed expenditures in social protection. Sickness and health expenditures include all sickness and healthcare expenditures. This statistic shows that expenditures have increased every year except in 2010. Sickness and healthcare expenditures were 115 390 million ISK which is major part of the social protection expenditures. Sickness and healthcare expenditures increased to 136 061 million ISK in 2009 and dropped in 2010 to 132 140 million. In 2013 these were increased to 155 413 million ISK.
0
2007 2008 2009 2010 2011 2012 2013
Public social expenditure and risk of poverty
Total expenditure on social protection At-risk-of-poverty rate Total
31 Similar type situation was in old-age pensions. These expenditures were increased every year except 2010. Totally the old-age pensions were almost doubled from 2007 57 085 million ISK to 100 127 million ISK in 2013. Chart 4 shows that expenditures in services for elderly people have increased every year from 2007 to 2013. In 2007 these were 5552 million ISK and 2013 these were 8576 million ISK which means 64,7% increase during the time period.
Family or child allowances are increased from 2007 to 2010 but decreased then until started to increase again in 2013. This is related to amount of the children which could be relation to decreased number of birth since 2010 (Statistics Iceland 2018b). Daycare for children expenditure have increased every year from 2007 11 146 million ISK to 2013 16 982 million ISK (Chart 4).
Unemployment benefits expenditures doubled between 2007-2008 from 2347 million ISK to 4642 million ISK. In 2009 these expenditures were 10 times to the 25 237 million ISK compared to 2007. From 2011 to 2013 these expenditures have decreased from 23 642 million ISK to 15 786 million ISK (Chart 4).
Chart 4 also shows that Iceland’s GDP (measured in GDP index) decreased from 109 to 108 between years 2007-2008. In 2009 GDP index had decreased to 101 and in 2010 it was near 98. This tells that the GDP had decreased significantly during 2007-2010. In 2011 GDP index had increased to 99,5 and 2012 just over 100. In 2013 this had increased to 103 which told that the economy was growing after years of slow growth.
Chart 4 shows that the Iceland kept social expenditures similar and increased those over the economically severe years. Investments to healthcare and pensions increased almost every year between 2007-2013. Only unemployment benefits decreased during 2010-2013.
This could be because of the improved economy during these years and improved employment situation.
32 Chart 4. GDP per capita comparison index and social protection expenditures in sickness and healthcare, old-age pensions, services to elderly people, family or child allowance, daycare for children and unemployment benefits in Iceland, 2007-2013. Source: Statistics Iceland 2018a.
Studying expenditures by functions in percentage of GDP reveals the percentages of police services, fire-protection services, street lightning and health services. In Chart 5 can be seen all these functions expenditures by year from 2007 to 2016. There are some changes in health expenditure in 2010 when it drops from 2009 7,8% to 7,5% in 2010 and to 7,3% in 2011. In 2013 it was increased back to the 7,5% where it has been during 2013-2016. 2010 increase could also be explained by inflation rates. During the years 2007-2016 the health expenditures have been around 7,3%-7,8%, changing slightly over the years (Chart 5).
Police services’ expenditure is smaller than the healthcare’s expenditure (Chart 5). Police services use around 0,7-1,0% of GDP. During years 2009 and 2010 it was increased to 1%
of the GDP but in years 2007, 2012 and 2015 it was 0,8%. In years 2008, 2010, 2013, 2014 and 2016 it was 0,7% (Chart 5). There has not been found a reason for the increase of expenditure of police services in 2009 and 2011.
92
2007 2008 2009 2010 2011 2012 2013
Social Expenditure in details and GDP per capita index
1. Sickness and health care 3.1.1 Old-age pensions 3.2 Services to elderly persons 5.1.3 Family or child allowance 5.2.1 Daycare for children 6.1.1 Unemployment benefits GDP per capita, index
33 Chart 5 shows that the fire-protection services used 0,13% of the expenditure in 2007 and after that it has been 0,12% every year expect 2016 it was 0,09% of the GDP.
Chart 5. General government total expenditures of police services, fire-protection services and health in 2007-2016. Source: Statistics Iceland 2018a.
Chart 6 shows that has Iceland changed the financing structure of social protection over the years. A data for this statistic was only available for the years 2007-2013. Graph 6 shows that central governments financing increased from 36% to 46% over the most difficult financial years 2007-2009 and was frozen to level 42%-43% in 2010-2012. In 2013 it was decreased to 37%. Local governments part was on the other hand increased every year from 2007 8% to 13% in 2012. In 2013 it was dropped to 12%.
Employer’s financing decreased from 39% to 32% in 2007-2008. 2009 it was only 31% but started to cover in 2010 to 34% of all financing (Chart 6). In 2011 it was up to 35% and 2012 in 36%. In 2013 it decreased to the 32%.
0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
General government total expenditure by functions in % of GDP
0310 Police services 0320 Fire-protection services 07 Health
34 Financing of the insured was in 2007 8% and stayed in 7% from 2008 to 2012. In 2013 it was 6%. There could be link between increased unemployment and financial difficulties of households, and between paid insurance policies. Other financing was around 10% in 2007-2008 and decreased to 6% in 2009-2010. After this it was only 3% until 2013 was already 13% of all social protection financing (Chart 6). In this chart can be seen that central governments financing part was decreased over the time and local government’s increased.
Employers’ financing has followed the employment situation overall. Private financing has been fairly similar over the years.
Chart 6. Financing of social protection including central government financing, local government financing, employer’s financing, financing of the insured and other financing in Iceland between 2007-2013. Source:
Statistics Iceland 2018a.
The graph of health personnel in Iceland has been collected from the Statistics Iceland (Statistics Iceland 2018), which has received the information from the Directorate of Health.
This data shows that average amount of population per nurses and doctors in Icelandic healthcare has stayed similar through the years 2007-2015. Statistics Iceland has statistics to show that the amount of the physicians and surgeons has increased during the years (Chart 7). Also, the amount of the population has increased during this time which has lead the ratio
0
2007 2008 2009 2010 2011 2012 2013
Central government financing Local government financing Employers' financing The financing of the insured Other financing
35 of physician and patients to stay similar during the years. Population in Iceland has increased every year during the years 2007-2015 and is currently 2017 338 349 persons. Even though Iceland had difficult financial situation after 2007 they have kept the amount of physician and nurses steady. And because most of the Icelandic doctors are trained in Iceland’s largest higher education institute University of Iceland, the investment in medical training and higher education overall has been stable during the years.
Chart 7. Number of inhabitant per medical nurse and physician and surgeon employee in Iceland between 2007-2015. Source: Statistics Iceland 2018a.
Budgets and amount of staff at the university has stayed similar during the years. The amount of expenditure for the Universities has stayed around 1,4-1,5 % of the annual GDP (Statistics Iceland 2018). These are inflation corrected numbers. Only during the years 2009-2010 this amount was 1,64% - 1,69% which indicates that the higher education and research were valued during the economic slope.
0 50 100 150 200 250 300 350
2007 2008 2009 2010 2011 2012 2013 2014 2015
Number of inhabitant per employee
Nurses Physicians and surgeons
36
4.3 Income support during difficult times
Currency exchange restrictions made the trade difficult, banking sectors difficulties affected to the financial sectors employment and the inflation was over 12% in 2008-2009. Iceland’s financial difficulties has had affects also to the households’ incomes and earnings. Statistics collected from the Statistics Iceland (2018) show that the amount of the income support receiving households almost doubled between years 2007-2013 from 4280 to 8042 households (Chart 8).
Chart 8. Number of households receiving income support in 2007-2016. Source: Statistics Iceland 2018a.
This indicates that Iceland’s financial situation affected households’ economic situation as well. Because of this also Iceland’s treasury had to increase the total paid amount. In 2007 the amount was around 1 350 000 thousand Iceland’s Krona (ISK) and in 2014 this was in highest 4 750 000 thousand ISK. Chart 9 shows that the total amount was 3,5 times higher in 2014 than 2007. Even with fixed inflation it is still high. After 2013 the amount of the households receiving income support decreased and after 2014 the total amount of paid income support also decreased total of 1 000 000 thousand ISK by 2016. Public expenditure in social protection has doubled between years 2007-2016 from 112 000 million ISK to 222 000 million ISK (Statistics Iceland 2018a).
0 1000 2000 3000 4000 5000 6000 7000 8000 9000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of homes receiving income support
37 Chart 9. Income support expenditure in Iceland between 2007-2016. Source: Statistics Iceland 2018a.
4.4 Employment
Starting from the financial crisis between 2007-2008 Iceland’s financial difficulties started to show in the unemployment statistics (Statistics Iceland 2018a). Unemployment rose from 2,3% to 3% in 2007-2008 and in 2009 it was 7,2% (Chart 10). In its highest peak in 2010 the unemployment was 7,6%. It is high if considering the last decades numbers from Iceland but if comparing these internationally, the unemployment in 2010 was average. It shows that Iceland was able to cover the lost jobs. One thing could be that major difficulties in economy were in banking and financial sectors rather than in industrial sectors.
0 500000 1000000 1500000 2000000 2500000 3000000 3500000 4000000 4500000 5000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Income support expenditure, thousand ISK
38 Chart 10. Total female and male unemployment percentage in Iceland in 2007-2016. Source: Statistics Iceland 2018a.
Unemployment figures between female and males were the same 2,3% in 2007 but after this year these became different when males’ unemployment rose to 3,3% and females rose to 2,6% (Chart 11). Unemployment figures for males were at highest in 2009 8,6% and in 2010 for females 6,7%. Male unemployment rose faster and higher than females. 2016 male unemployment decreased into 2,9% and female unemployment 3,1%. Studying the unemployment figures by the age of 16-24, 25-54 and 55-74, can be seen that unemployment hit most severely to the young people between 16-24 years old (Chart 12). Female unemployment within the 16-24 age group rose from the 2007 6,2% to 14% in 2010 and stayed near 12% until 2012. After this it has decreased to 6,4% in 2016. Unemployment between females has similar structure if compared ages 25-54 and 55-74. The younger age is related to higher unemployment rate.
0 1 2 3 4 5 6 7 8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Unemployment %
39 Chart 11. Female and male unemployment percentages by gender in 2007-2016. Source: Statistics Iceland 2018a.
0 1 2 3 4 5 6 7 8 9 10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Female and male unemployment
Males Total Unemployment Females Total Unemployment
40 Chart 12. Female unemployment percentage by age groups 16-24, 25-54, 55-74 and total female unemployment in Iceland. Between 2007-2016. Source: Statistics Iceland 2018a.
Situation is similar with unemployed males. Unemployment with males between the age of 16-24 increased from 8% 2007 to 19,9% in 2009 (Chart 13). Unemployment decreased slightly 2009-2010 until it stayed 18,4% in 2010-2011. Males between the age of 16-24 unemployment decreased yearly until 2016 it was 10,7%. In the chart 6 can be seen that older unemployed males have similar structure in increase but only age the of 25-54 increased to 7,2% unemployment. On the other hand, there is a slight increase in age 55-74 in 2011 when the unemployment was a record 6,3%. During that year the unemployment between 55-74 increased slightly over the 25-54 old.
0 2 4 6 8 10 12 14 16
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Female unemployment by age
Females Total Unemployment Females 16-24 Unemployment Females 25-54 Unemployment Females 55-74 Unemployment
41 Chart 13. Unemployment by age groups 16-24, 25-54, 55-74 and total male unemployment between years 2007-2016. Source: Statistics Iceland 2018a.
Chart 14. Total employment percentage level in Iceland in 2007-2016. Source: Statistics Iceland 2018a.
0 5 10 15 20 25
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Male unemployment by age
Males Total Unemployment Males 16-24 Unemployment Males 25-54 Unemployment Males 55-74 Unemployment
78,5 79 79,5 80 80,5 81 81,5 82 82,5 83 83,5 84
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Employed total - %
42 Studying the employment in total, including females and males, reveals that the employment levels decreased between 2007 and 2011 (Chart 14). During this time the total employment drop from 83,5% to 80,5%. Years 2011 and 2012 stayed similar in 80,5% but in 2013 had the employment levels already increased to the 81,4% and 2014 to 81,5%. After this has the employment level increased up to 83,6% in the end of 2016 (Chart 14). This is high employment level compared to EU-level 66,9% and Finland’s 68,4% in the end of 2016 (Eurostat 2018). Iceland’s employment level was back from 2007 pre-financial crisis level in 2016. It took 10 years to employment to reach the previous levels. This could have affected to tax incomes of the country and every people’s life finding the work.
4.5 Effects of tourism
One of the major business sector and a large factor to Iceland’s economy is tourism. The economic slump in 2008 did not freeze the increase of the overnight stays in hotels and other accommodation. In 2010 the overnight accommodations decreased slightly from 2009 which on the other hand was year of the grow in accommodations. From the year 2011 started the overnight accommodations increase even more rapidly from 3 248 000 to 8 378 000 customers in 2017 (Statistics Iceland 2018d). This means that in 7 years the overnight accommodations increased 2.5 times. That increased sales but also the infrastructure and building construction had to remain in growth. One of the reasons to this increase could have been the low value of the Icelandic Krona compared to the other currencies such as Euro.
The amount of employees has increase every year since 2008 except in 2009 (Statistics Iceland 2018c). The employee amount has over doubled from about 14000 to over 30000 in 2017. In this statistics only seasonal peaks are studied and seasonal low are about 3000-5000 employees less than peaks (Statistics Iceland 2018c).
43