Icelandic business leaders grow more pessimistic about economy

Managers of Iceland’s largest companies have become more pessimistic about the economic outlook, according to a new Gallup survey reported by mbl.is. The economic index rose marginally from 14 to 19 points, but Bjarni Benediktsson said the change was hardly significant.

The index is based on business leaders’ assessment of the state of the economy and ranges from zero to 200. Expectations for the economy six months from now fell from 36 points to 26.

Expectations for employment have also worsened. More companies now expect to reduce their staff than to increase it over the next six months.

Bjarni said the effects of persistently high interest rates were becoming increasingly clear in the business community.

“It has been extremely burdensome to have interest rates this high for so long, something nobody expected,” he said.

Other indicators were only marginally better. Inflation expectations have fallen slightly over a one-year period but remain well above the inflation target. Business leaders identified rising labour costs as the main factor likely to drive price increases over the next six months.

Bjarni said little progress had been made towards changing practices in the labour market. He pointed to recent examples of wage agreements exceeding previous general agreements and of individual groups threatening strikes or using other pressure to secure terms well beyond those intended to support stability.

He said changes would require agreement between labour-market organisations and the government, but that such agreement had not been reached.