High level view of the Real Estate market in Iceland
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High level view of the Real Estate market in Iceland February 4th 2021
Disclaimer & Confidentiality
This presentation was prepared by Arion Bank Corporate Finance. The information set out in this
presentation has not been verified by Arion Bank Corporate Finance, its client/s or any other person
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Confidential
This presentation and its contents are confidential and may not be re-distributed, published or
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limitations.
2
4 February 2021 Confidential – Discussion material
1. Market characteristics/facts 2. Options of foreign investment entry 3. Macroeconomic environment 4. Arion Bank as a partner
Market characteristics of the Icelandic Real Estate Market
Background facts to keep in mind
Iceland snapshot Market characteristics and facts
368,000 $23 bn. (3,000 bn. • Market size of commercial real estate estimated 12-13 million sq.meters (~135
Population (2019) ISK) million sq.foot)
GDP (2019) • Residential market in Iceland is consist of ~145,000 apartments/houses
• 85% of the population live in own apartments/houses and 15% are on the
rental market
1.9% $64,500 (8 m. ISK)
• Index linked
GDP growth (2019) GDP per Capita (2019)
• Loans and rental agreements indexed to the official consumer price index (CPI)
have been a common product in Iceland since 1979.
• CPI-linked mortgages are typically annuities, where the monthly payment and
#13 #1 the remaining principal are linked to the CPI, where the inflation effect
Economic Freedom Gender Gap accumulates on top of the principal.
(2020) (2020)
• 60% of household mortgages are indexed and 40% non-indexed
• Residents and legal entities, domiciled outside EEA or EFTA are subjected to
USD/ISK Inflation and inflation target restrictions that would need to be considered early in the process
160 5,0%
140
4,5% • Relatively low volumes compared to Scandinavia
4,0%
120
3,5% • Icelandic krona - On global scale a small independent currency
100 3,0%
80 2,5% • Covid-19 measures have been successful, and way of life is largely unaffected
60 2,0%
40 1,5%
1,0%
20
0,5%
0 0,0%
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jul-17
Jul-18
Jul-19
Jul-20
Sep-17
Sep-18
Sep-19
Sep-20
Jan-17
May-17
Jan-18
May-18
Jan-19
May-19
Jan-20
May-20
Jan-21
4
4 February 2021 Source: Statistics Iceland; Central Bank of Iceland; Registers Iceland; HMS; Landsbanki Research, heritage.org; World Economic Forum
Real Estate exposure through listed market
The Icelandic listed bond and equity market
The bond market (Total size: 24 bn.USD) The equity market (Total size: 13 bn.USD)
Non-real estate 13 bn USD
24 bn USD
1,0 Real estate
Other real
3,1 0,8
5 estate Reitir 0,44
Eik 1,1 Transport
Reginn
Corporate 0,7
0,5 Reginn 0,32
Eik
0,3 1,3 Seafood
0,4
Reitir 0,26
10 0,6
Mortgage Telecom
1 1
backed 0,32
TM Insur.
0,20 5,4
Retail
VÍS Insur. 0,31
6
HFF´s 0,28
Government Sjóvá Insur.
Industrials
9 CB´s Kvika Bank
1,29
4 Arion Bank 2,4 Financials
1 1 1 1
• Debt markets amount to roughly 100% of GDP and is predominantly • The equity market is around 50% of GDP, relatively smaller than in other Nordic countries
government or mortgage backed. Close to 50% of all issues are inflation • The Icelandic equity market includes the largest local companies in retail, commercial real estate,
protected telecom, insurance, transportation and tourism along with key seafood companies.
• Corporate bond issuance is firmly on the rise. A clear leader in domestic • Foreign ownership is predominantly in the two dually listed companies, Marel and Arion Bank.
capital markets, Arion Bank embraces this trend
• Mutual funds and investment companies have been gradually accumulating larger part of the market.
Pension funds manage a high share of private savings in Iceland. Domestic pension funds, are the single largest group of investors in both domestic debt and equities.
5
4 February 2021 Confidential
Sources: Nasdaq OMX Iceland, Arion Bank
Listed Commercial Real Estate Companies
375,000 sqm 440,000 sqm 310,000 sqm
Assets Assets Assets
~4 m.sq.feet ~5 m.sq.feet ~3 m.sq.feet
Market Cap: $300 m. Market Cap: $405 m. Market Cap: $255 m.
NOI LTM1: $50 m. NOI LTM1: $52 m. NOI LTM1: $40 m.
Assets book value: $1,0 bn. Assets book value: $1,0 bn. Assets book value: $725 m.
P/B: 0.9x P/B: 1.0x P/B: 1.0x
Yield: 4.9% Yield: 4.9% Yield: 5.5%
EV/sqm (sq.ft): $2,500 ($230) EV/sqm (sq.ft): $2,400 ($220) EV/sqm (sq.ft): $2,300 ($210)
Split of investment assests2 Split of investment assests3 Split of investment assests3
2%
8%
5% 13% 11% 9%
33% 37% 46%
14% 13%
17%
36% 24%
32%
Offices Consumer retail Offices Consumer retail Offices Consumer retail
Industrial warehouses Hotels Industrial warehouses Hotels Industrial warehouses Hotels
Others Others Others
Share price development in ISK Share price development in ISK Share price development in ISK
35 120 14
30 100 12
25 80 10
20 8
60
15 6
10 40 4
5 20 2
0 0 0
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
Company website: https://www.reginn.is/en/ Company website: https://www.reitir.is/en Company website: https://www.eik.is
6
4 February 2021 Sources: Capital IQ, Company information and annual reports from Reginn, Reitir and Eik
1.LTM Sept’19 - sept’20; 2.Split by square meters; 3.Split by rental income
Listed Commercial Real Estate Companies
Decent recovery expected post Covid
Utilization rate Monthly rental income pr. sq.m. by real estate type (Reginn, Reitir & Eik)
99%
Consumer retail
97%
96% Offices
95% 95%
Industrial warehouses
93%
92%
Hotels
91%
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 Others
Reginn Reitir Eik 9 12 15 18 21 24 27 30 33
USD
NOI Yield (EBITDA/EV) WACC by real estate type (Reginn, Reitir & Eik)
Weighted average
7,0%
Consumer retail
6,0%
Offices
5,0% Industrial warehouses
Hotels
4,0%
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
2015 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 Others
Reginn Reitir Eik 4% 5% 6% 7% 8% 9% 10%
7
4 February 2021 Confidential
Sources: Company information, Annual reports, Arion Bank research
Listed Commercial Real Estate Companies
Bond issues - Yields have declined slowly as the spread has increased
• The latest bond issues of the Yield on real estate bond issues in offerings
Icelandic real estate companies 4,0%
issued for 10-30 years have 3,5%
been between 2.25-2.50% 3,0%
(indexed) 2,5%
2,0%
• The Central Bank‘s policy rate
1,5%
has never been lower and today
1,0%
stand at 0.75%
0,5%
• Yields on long-term government 0,0%
bonds have fallen in recent -0,5%
years but bond issues have not 2017-01 2018-01 2019-01 2020-01 2021-01
RIKS 30 Eik Reitir Reginn Heimavellir
followed to the same extent.
• The spread on corporate bonds Spread between RIKS30 (gov) and 1.st lien listed CRE bond
have therefore risen 3,0%
substantially since 2016 but the
2,5%
yield has fallen to some extent,
especially in recent months. 2,0%
1,5%
1,0%
0,5%
0,0%
2017-01 2018-01 2019-01 2020-01 2021-01
Eik Reitir Reginn Heimavellir
8
Sources: Government Debt Manager, Nasdaq OMX Nordic, Arion bank
RIKS30 is an Icelandic Indexed Treasury Bond
Iceland‘s Commercial Real Estate Market Listed on Nasdaq OMX Iceland
Comparison with Nordic shares
Listed real estate companies (EV/EBIT)
• Nordic transaction volume has been 80x
roughly around 50 bn.USD annually
60x
in the last couple of years, Iceland still
40x Average 29x
a minor part of total volume 20,8x 20,6x 18,4x
• Listed Icelandic real estate 20x
companies trading well below the 0x
Corem
Diös
K2A
Nyfosa
Eik
Fabege
Brinova
Kojamo
Klövern
Entra
Pandox
Balder
SBB i Norden
Reitir
Catena
NP3
Reginn
FastPartner
Castellum
Sagax
Wihlborgs
Wallenstam
Akelius
Platzer
Heimstaden
Citycon
Olav Thon
Hufvudstaden
Stendörren
Atrium Ljungberg
Kungsleden
Norwegian Property
EV/EBIT multiple average of 29x.
– Reitir and Eik closer to the market
average when compared to Price
to book
– The three Icelandic have a higher
debt ratio then it‘s Nordic peers. Listed real estate companies (P/B)
4x
3x
2x Average 1,3x
1,1x 1,1x 0,9x
1x
0x
Diös
Brinova
Corem
K2A
Entra
Kojamo
Nyfosa
Klövern
Eik
NP3
Balder
SBB i Norden
Fabege
Sagax
Catena
Wihlborgs
FastPartner
Reitir
Pandox
Reginn
Castellum
Citycon
Wallenstam
Platzer
Stendörren
Akelius
Hufvudstaden
Olav Thon
Heimstaden
Kungsleden
Atrium Ljungberg
Norwegian Property
9
Sources: S&P Capital IQ, Arion bank, JCapital Research
Other alternatives - Further consolidation of the residential leasing market
Residential market
• Residential leasing, fragmented
CPI adjusted price of RRE in the Capital Area
market
250 40%
• The Norwegian based Heimstaden
12m YoY increase (%)
entered the market in 2020 30%
200
• Real estate prices in the greater 20%
Price of RRE
Reykjavik area have increased 150 10%
lately with September 2020 being a
record month by agreements. 100 0%
• Projected lack of supply in the -10%
market of 5,000 – 8,000 residential 50
-20%
units.
– The capital area accounts for 0 -30%
1994 1997 2000 2003 2006 2009 2012 2015 2018
approximately 70-80% of that
figure. Real RRE price increases (adj. for CPI) 12m running avg. (r. ax)
• Despite slowing sales of newly built
apartments in downtown Reykjavik
there are multiple examples of Price (ISK/sq.m.) in the Capital Area
successful projects in the greater
metropolitan area recently.
– These include recent projects in
Kársnes in Kópavogur, Lyngás
in Garðabær alongside various
projects in the new Urriðaholt
neighborhood in Garðabær.
• The lowering of interest rates in ISK
is injecting fuel into the market.
10
Sources: Registry Iceland (all registered RE purchase in 2014-2020), SA Confederation of Icelandic Enterprise, House Financing Fund, Arion bank,
Federation of Icelandic Industries (sept. 2020 analysis), Statistics Iceland.Other alternatives - Real Estate Development
Opportunity every now and then to invest in development projects
• Given strong residential market, this segment can be an interesting option RRE under construction phase 1 & 2 in the Capital Area1
• Real Estate in the construction phase, barely keeping up with demand or alleviating housing 6.000
shortage
5.000
• First North listed real estate development company Kaldalón, currently developing approx.
~700 apartments 4.000
• Areas under consideration for development in Iceland need to go through a zoning process
that consists of two levels, general and detailed zoning 3.000
• Arion bank Corporate Finance could e.g., assist an interested foreign investor with 2.000
selecting and negotiating partnerships with experienced developers in RRE
development projects seeking capital for larger projects. 1.000
• Theoretical outlines below: 0
Q1 Q3 Q1 Q3 Q1 Q3
2018 2018 2019 2019 2020 2020
Confirmed Opportunity
Local equity Project Project
Design New Partner Construction
partners management Financing
• Strong local • Experienced local • Experienced • Investment can be • Arion bank has a • A strong
strategic equity architecture firm on project in form of: powerful corporate construction
partner design management team ‒ Equity banking and partner will be
in commercial investment banking sourced.
‒ Preference shares presence
and/or residential • A firm with a solid
real estate projects ‒ Fixed income • Provides a range of presence and
instrument debt financing know-how in the
‒ Other alternatives solutions Icelandic
construction
sectors.
11
4 February 2021 Confidential
Sources: SA Confederation of Icelandic Enterprise, House Financing Fund, Arion bank, Federation of Icelandic Industries (sept. 2020 analysis).
1. Phase 1: Initial stages. Phase 2: Concrete walls and glass installed.Other alternatives - Further consolidation of the commercial market
Commercial market
The commercial real estate market in Iceland
• The three listed Real Estate
companies are accounting for
close to 10% of the total
estimated market for
commercial real estate
measured by size 4%
5%
7%
• Room for further consolidation
35%
• Seeking yield through a buy and 10%
build strategy 12-13 million m2
Estimated
• Buying into an existing private
platform for further growth 12%
• Number of larger companies in
retail and other industries 27%
owning their properties
Specialized Industry Retail Office
Warehouse Hotel Other
12
Confidential
Sources: SA Confederation of Icelandic Enterprise, Arion bank, Landsbankinn Research, Statistics Iceland.Reykjavik City hotel market
Attractive leisure and future conference destination
• Most of the largest main hotel brands are strategically located
in Reykjavik City Center.
– CenterHotels
– KEA Hotels
– Íslandshótel
– Icelandair Hotels
– Reykjavik EDITION
– Other/Standalone
• Over the last years there has been a rather steady increase in
available hotel rooms in Reykjavik resulting in nearly 4.900
available rooms in 2020.
• Reykjavik’s first five-star hotel is being built next to Reykjavik’s
Harpa Concert Hall and Conference Centre.
– The new luxury boutique hotel will be a Marriott EDITION
hotel and offer 253 rooms, event and conference rooms,
restaurants and spa facilities.
– US based investors acquired the development plot and
successfully financed the project with local equity investors
and project financing from Arion bank in 2016.
Average occupancy ADR in Capital Area RevPAR in Capital Area
80% 84% 85% 80% +6% +4% -5,4%
74% 77% 77%
20.000 ISK +10% +6% 20.000 ISK
+0,3% -22,2% +11% +6% -1% -10%
+14%
+5%
10.000 ISK 10.000 ISK
-79%
21% 0 ISK 0 ISK
2013
2014
2015
2016
2017
2018
2019
2020
2013
2014
2015
2016
2017
2018
2019
2020
2013
2014
2015
2016
2017
2018
2019
2020
13
Confidential – Discussion material
Sources: Benchmark Alliance, Arion bankArion Bank at a Glance
Leading diversified financial institution in Iceland with strong market position
• Team of 700 talented financial service specialists focusing on our clients in our core markets
• Nimble domestic digital leader build on solid foundations of bank’s predecessors which trace back to 1930
• Arion Bank is dual listed on the main market in Reykjavik and Stockholm with international and diversified ownership
• Strong emphasis on sustainable and responsible banking
Retail banking Corporate and Investment banking
• Domestic digital leader in retail banking • Corporate banking and advisory
• Largest private provider of residential mortgages • Business relations with large corporates, domestic and foreign
• One third market share in Iceland • Loan syndication
• Wide range of financial services for both individuals • Advisory e.g., sale of equity, purchase and financing of
and SMEs firms as well as listing securities on stock exchanges
Markets Insurance
• Largest asset manager in the Icelandic market • Largest life insurance company in Iceland
• Emphasis on institutional investors and HNW clients
• 4th largest universal insurance company
• Leading capital markets house
• Full range of insurance products and services
• Largest custody service provider in Iceland
Payments
• Largest card payments company in Iceland (held for sale)
14Arion Bank as a partner with foreign investors
Sound local presence
Arion bank is on the forefront of servicing foreign legal entities with business ties
to Iceland.
• We offer customized solutions and meet diverse needs of customers with extensive
knowledge, excellent services and a diverse product range.
We place great emphasis on digital solutions that benefit our customers.
• Online banking is available for non-Icelandic nationals giving our foreign counterpart
option of multiple online users and 24-hour access with a user-friendly platform.
• Online users are authenticated through cell phones to make set up easier and more
secure.
Arion bank can provide all aspects of Corporate and Investment banking services
Debt and Capital Market Current and Foreign currency
Financial Advisory, M&A
Financing savings accounts accounts1
Bank statement reporting Customized debt FX advisory
Trading activities
for foreign clients finance solutions and services
Online banking
Hedging, Swaps, etc. Swift payments Private banking
in English
15
4 February 2021 Confidential
Sources: Arion Bank
1. Including but not limited to USD, GBP, EUR, PLN, DKK, NOK, SEK, CAD, AUD, CHFHedging currency and interest rate risk
Historically low interest rate differential between USD and ISK
Historical movement of the USDISK cross over
Arion bank can provide various hedging
• There have been large price movements in 150
products for investors exposed to currency or
the USDISK cross over the last 5-years. Over
140
interest rate risk
this 5-year period the USDISK cross has
• Strong position on the Icelandic FX market, combining 130
fluctuated with an average price of 118,31.
research and sales with strong risk capabilities 120
• As a part of risk management, you can lock in
including spot, forwards, money market, interest 110
the current historically low interest rates and
rate products and options
manage your currency risk with hedging 100
• An outright forward, or currency forward, is a products that can be tailored according to 90
currency contract that locks in the exchange rate and investors needs and adjust to the investor’s 02.'16 02.'17 02.'18 02.'19 02.'20
a delivery date beyond the spot value date. It is a risk appetite
simple type of FX forward contract and protects an
investor, importer or exporter from exchange rate risk.
• FX option is a derivative financial instrument that
Interest rate differential is historically low Interest rate differential between USD Libor and Reibor
gives the right but not the obligation to exchange
7
7,00
money denominated in one currency into another at a
6,00 6
pre-agreed exchange rate on a specified date.
5,00 5
• A fixed-for-floating swap is a contractual 4,00 4
arrangement between two parties in which one party 3,00
3
swaps the interest cash flows of fixed-rate loan(s) with 2,00
2
those of floating-rate loan(s) held by another party. 1,00
1
The principal of the underlying loans is not exchanged 0,00
02.'11 02.'13 02.'15 02.'17 02.'19 0
02.'11 02.'13 02.'15 02.'17 02.'19
3 month REIBOR 3M LIBOR USD
16
4 February 2021 Confidential – Discussion material
Sources: Bloomberg, Arion BankArion Bank Team
Contact Information
Corporate Finance Capital Markets
Lydur Thorgeirsson Armann Andri Einarsson Stefan Broddi Gudjonsson
Head of Corporate Finance Senior Vice President Senior Vice President
Corporate Finance Capital Markets
B.Sc. E&CE - University of Iceland
B.Sc. Finance - Reykjavik University B.A. Political Science – University of Iceland
MBA - MIT Sloan School of Management
IMC Securities Trading Cert. IMC Securities Trading Cert.
IMC Securities Trading Cert.
armann.einarsson@arionbanki.is stefan.gudjonsson@arionbanki.is
lydur.thorgeirsson@arionbanki.is
Mob: +354 856 6120 Mob: +354 856 6959
Mob.: +354 842 5330
17
Confidential – Discussion materialMacroeconomic environment
Macro: Uncertain short-term outlook while the future should be bright
The year is off to a slow start, with the economic contraction set to extend into the year
• The Coronavirus Crisis has heavily
impacted the Icelandic economy due to its GDP growth GDP per capita in 2020 (PPP, International dollars, thous.
dependency on foreign trade, especially 6.6% IMF’s estimates)
tourism. 4.7% 4.5% 4.1%
3.8% 65
• According to IMF’s October forecast 2.1% 1.9% 58
54 52
Iceland’s GDP could shrink by 7.2% in
49
2020, followed by a rebound in 2021. 44
Domestic analysts are much more 2014 2015 2016 2017 2018 2019 2020E 2021E
pessimistic, with the consensus at 8.2%
contraction followed by a softer and more
fragile recovery. Despite larger contraction
than in other Nordics, GDP per capita will
remain high. -7.2%
• With the resurgence in new Covid-19 cases
worldwide and new highly contagious
Iceland Other Nordics Norway Denmark Iceland Sweden Finland EU
strings of the virus emerging, neighboring Euro area Consensus forecasts*
countries have responded swiftly,
implementing strict measurements and
Tourist arrivals via KEF airport (millions, Arion Bank’s Registered unemployment, excluding the reduced
travel restrictions. At the same time Iceland
October 2020 estimates) employment ratio scheme (Arion Bank’s estimates
has managed to quell the spread, thus 12%
2,5
enjoying less restrictions.
10%
• However, strict travel restrictions will be in 2
place until May 1st, dampening hopes for a 8%
1,5
strong high-season in tourism and reflected
6%
in unemployment forecasts. 1
• When borders open a new Iceland should 4%
be able to enjoy strong growth in tourism, as 0,5
2%
the country is sparsely populated, clean,
0
safe and has solid and reliable data in the 0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021E
2022E
battle against Covid-19.
19
Sources: IMF, Icelandic Tourist Board, Directorate of Labor, Arion Bank. * Based on domestic analysts, both in the public and private sector.Macro: Successfully dealing with COVID-19
While neighboring countries have gone into strict lockdown, Icelanders are enjoying relatively soft measures, as reflected by the Government
Response Tracker. Vaccination is underway, albeit at a slower pace than many expected. While tourism is still in hibernation mode domestic sectors
have witnessed a surge in demand from domestic consumers.
Number of domestic COVID-19 infections The Oxford COVID-19 Government Response Tracker Payment card turnover
20%
120 90
80
10%
100 70
60 0%
80
50
40 -10%
60
30
40 -20%
20
10
20 -30%
0
Jul-19
Jul-20
Jan-19
Jan-20
Sep-19
Mar-19
Nov-19
Sep-20
Mar-20
Nov-20
May-19
May-20
Denmark
Norway
Germany
Iceland
Ireland
Italy
UK
Greece
Spain
Finland
France
Luxembourg
Belgium
Switzerland
Estonia
Netherlands
Austria
Hungary
Sweden
Portugal
Latvia
New Zealand
0
Jul-20
Jun-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Mar-20
Apr-20
Feb-20
May-20
Domestic payment card turnover
Total Icelanders payment card turnover
Percentage of vaccinated persons by age Departures from Keflavik Airport Imported goods – bn. ISK, constant exchange rate, YoY %-
60 change
80%
250 -12% 2019 2020
70% 50
60% 200
50% 40 -13%
40% 150 5%
30% 30
-16%
20% 100 -7%
20 -53%
10%
0% 50
10
-
0
Industrial
Fuels and
equipment
beverages
Capital goods
Consumer
lubricants
Transport
supplies
Food and
May
June
April
January
March
August
September
October
July
November
December
goods
Vaccination started Vaccination completed
20
Sources: Covid.is, University of Oxford, Keflavik Airport, Central Bank of Iceland, Statistics Iceland, Arion BankMacro: Divided domestic market
While unemployment continues to climb wages are on the rise. Despite inflation inching upwards purchasing power has increased, pushing housing
prices higher.
EUR/ISK and CBI‘s intervention in the FX market (bn. Inflation and inflation target
14
ISK) 170
• With the largest export sectors struggling, 5,0%
it’s no surprise that the ISK has depreciated. 12 165
4,5%
The CBI has intervened in the FX market 160
10 4,0%
on the most volatile of days, supporting the
155 3,5%
ISK and keeping the exchange rate 8
150 3,0%
relatively stable. In order to deepen the
6 2,5%
market, the CBI has begun regular program 145
of foreign currency sales. 2,0%
4
140
• Inflation has risen in the past months due to 1,5%
2 135 1,0%
the pass-through from the ISK depreciation
and climbing housing prices. Although the 0 130 0,5%
Jul-20
Jan-20
Jun-20
Aug-20
Sep-20
Nov-20
Dec-20
Mar-20
Apr-20
Oct-20
Feb-20
May-20
May-20
rapidness of the rise has come as a surprise, 0,0%
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Sep-17
Sep-18
Sep-19
Sep-20
May-17
May-18
May-19
May-20
most analysts expect that inflation has
peaked, inching below the upper tolerance CBI buys ISK CBI sells ISK EUR/ISK (r.axis)
limit (4%) as the first quarter progresses.
• Rising housing prices have stoked Payment card turnover
Housing prices in the Capital Area (YoY %-change)
inflationary pressures in the past months
20%
following hefty rate cuts. At the same time 25%
housing investment is decreasing, causing 10%
20%
many to worry that a housing bubble is in the 0%
works. 15%
-10%
• At the same time as unemployment reaches 10%
-20%
new heights, real wages are increasing, as
reflected in stronger than expected private 5% -30%
Jul-17
Jul-18
Jul-19
Jul-20
Jan-17
Jan-18
Jan-19
Jan-20
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Oct-20
consumption, and housing prices on the rise, 0%
Jul-17
Jul-18
Jul-19
Jul-20
Jan-17
Jan-18
Jan-19
Jan-20
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
creating a divide in the labor market. This is Oct-20
an uncharted territory in Iceland. Domestic payment card turnover
Total Icelanders payment card turnover
21
Sources: CBI, Statistics Iceland, Registers Iceland, Arion Bank.Macro: Fiscal and monetary responses soften the economic blow
The government and the CBI Governor have underlined that all necessary measures will be taken to support the economy through the crisis.
• Unlike many neighboring countries Icelandic
authorities had plenty of firepower at their
disposal to support the economy. The CBI Key interest rates (seven-day term deposit rate) Household and non-financial corporate debt (% of GDP)
has cut interest rates by 2.25 percentage 7,0% 400%
points, eased the countercyclical capital
6,0% 350%
buffer and launched a QE program to name
300%
a few. In addition, the CBI has ample FX 5,0%
reserves at its disposal, surely supporting 250%
4,0%
investors confidence. 200% 176%
3,0%
• The CBI’s FX reserves, well balanced 150%
external trade, despite everything, and the 2,0%
100%
positive NIIP of the economy mean that 1,0% 50%
balance of payments worries is limited.
0,0% 0%
•
Jul-18
Jan-16
Jun-16
Jan-21
Nov-16
Sep-17
Dec-18
Aug-20
Apr-17
Feb-18
Oct-19
Mar-20
May-19
Q3 2020
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
More importantly, both the public and private
sectors used the last upswing to
deleverage, pushing debt levels to historic Households Companies
lows.
General government gross debt (% of GDP) Direct COVID-19 fiscal measures (% of GDP)
• The Treasury bears the brunt when it comes
to protecting the economy. So far numerous 120% 20%
fiscal policy measures have been 18%
100% 16%
introduced, both aimed at mitigating the
14%
revenue shock suffered by households and 80% 12%
companies and protecting jobs and 10%
60% 8%
companies.
40% 6%
• Direct fiscal measures are similar in scope 4%
20% 2%
to those put in place in other Nordic
0%
Advanced…
countries, but smaller than on average in
Finland
Switzerland
New Zealand
Norway
Sweden
Germany
Iceland
Czech Republic
Singapore
US
UK
Italy
Denmark
Belgium
France
Netherlands
Spain
Canada
Japan
0%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
advanced economies. However, various
other fiscal measures have been
Denmark Finland Iceland
implemented, though they do not have the
Ireland New Zealand Norway
same direct impact on the Treasury Sweden Euro area
outcome.
22
Sources: CBI, Statistics Iceland, IMFYou can also read
