Economists warn Icelandic households face tougher months ahead

Jens Garðar Helgason, deputy leader of Iceland’s Independence Party, and Þorgrímur Sigmundsson, an MP for the Centre Party, say the economic outlook suggests the coming months could be difficult for households, mbl.is reports.

They made the comments on Morgunblaðið’s Dagmál programme, where presenter Andrés Magnússon interviewed them about the budget, inflation, interest rates and the position of the government.

The interviewer noted that there were few signs of inflation easing quickly, unemployment was rising and interest rates remained high. He asked whether those conditions could continue into next spring and what political consequences that might have for the government.

Limited room in the budget

“I think this will become an increasingly difficult struggle for the government,” Jens Garðar said.

He criticised the budget proposal for targeting a surplus of only 4.7 billion Icelandic krónur on state revenues and expenditures totalling about 1,708 billion krónur. He said the room for manoeuvre was extremely limited.

“You cannot keep placing heavier and heavier burdens on the people of the country,” Jens Garðar said. He argued that continued increases in taxes and charges could fuel inflation.

He also highlighted the index-linking of benefits to the wage index, which takes effect at the beginning of the year. He said the cost could amount to between 5 billion and 10 billion krónur and that the measure could further increase inflationary pressure.

Concern over household finances

Þorgrímur said household finances should be monitored particularly closely in the coming months. Signs of rising payment arrears were beginning to appear, he said, while the full effects of measures introduced last winter were only now emerging.

“I think we are only now beginning to see the consequences of last December in earnest,” Þorgrímur said.

He added that he believed the trend in payment arrears was now likely to move upwards. The programme also discussed household finances and the outlook through next spring.