Economic statistics - 01.05.1986, Qupperneq 5
The National Economic Institute predicted in April
that the catch of most species will in 1986 be un-
changed from 1985, except that the cod catch might
increase by 10%. The NEI further predicted that total
export production will increase by 6%, or by a similar
amount as last year. The fish catch during the first
four months of the year does not make these pre-
dictions look too optimistic. The total catch was
111/2% higher than during the same months last
year, thereofthe cod catch 10% higherandthecatch
of other white fish 131/2% higher.
The terms of trade are predicted to improve by
41/2-5%. This improvement is mainly caused by the
collapse of oil prices on international markets, a
sharp rise in prices of frozen fish products at the be-
ginning of the year and higher contract prices for
salted fish. Favourable terms for increasing fresh
fish landings in W-Europe is also, an important
source of export revenue. The development of the
terms of trade in recent years is shown in figure 3.
GDP is predicted to increase by 3.4% by the NEI.
1986 will thus be the third successive year with 3-
31/2% GDP growth. GNP is predicted to increase
slightly less, or 3.1 %, but gross national income will
increase much more due to the terms of trade improve-
ment, or by 5.1%. This will bring the cumulative
increase in national income to 11.6% over three
years, compared to a 5.2% decline during the re-
cession 1982/83. In capita terms national income will
be 0.2% above its former peak level in 1981. The
development of GDP and GNI per capita in recent
years is shown in figure 3.
Private consumption wil increase considerably as
last year, or by 41/2%, but public consumption is pre-
dicted to increase by 1 %. Grossfixed investment will
be stagnant, but some accumulation of stocks is pre-
dicted, bringing the increase in total national ex-
penditure to 3.6%. This implies that most of the
terms of trade improvement will be available to
reduce the current account deficit from 4.3 to 2.5% of
GDP, as shown in figure 4. As long term foreign debt
amounted to 55% of GDP at the end of 1985 and with
inflation in industrial countries running at 3-31/2%, a
2.5% current account deficit is very near to being
consistent with inflation-adjusted external equilibri-
um. This fact along with a higher real exchange rate
in 1986 than 1985, will reduce long term foreign debt
as a ratio of GDP to 50%, as shown in figure 4. The
debt service burden is predicted to remain unchanged.
Conclusions
The good fortunes of the economy this year are
being employed to reduce imbalances of high inflat-
ion and a current account deficit at the same time as
real incomes are rising. The price is a considerable
Treasury revenue deficit. Monetary policy has been
geared to avoiding inflationary consequences of this
deficit by increasing domestic borrowing from pen-
sion funds, banks and the general public. A success-
ful implementation of this economic and incomes
policy package should then make it possible to
reduce inflation down to the level of lceland's trading
partners and close the current account deficit in
1987.