Cooling economy expected to push unemployment higher this winter

Unemployment is expected to rise in Iceland this winter as the economy cools, mbl.is reports. Yngvi Harðarson, managing director of Analytica, said the company’s leading economic indicator points to declining economic activity.

The indicator combines six components and tends to signal economic trends about six months ahead. Harðarson said unemployment was already increasing in data from the Directorate of Labour and Statistics Iceland. The Directorate’s figures are based on people receiving unemployment benefits and can understate joblessness because not everyone qualifies for benefits.

The Directorate recorded unemployment at 4 per cent in September, up 0.1 percentage points from the previous month. A total of 8,820 people were unemployed at the end of September: 5,196 men and 3,624 women. Statistics Iceland’s labour force survey, meanwhile, put unemployment at 6 per cent in August, with 14,100 people out of work.

Harðarson said there were not yet clear signs that the downturn had bottomed out. He said a possible easing of interest rates by the Central Bank could help, but noted that rising global commodity and oil prices were a concern. He linked some of the increases to unrest in the world, including restricted shipping through the Strait of Hormuz and disruption to transport in the Black Sea. A possible increase in foreign visitors, including direct flights from China and more tourists from the United States, could offset some of the pressures.

Ásta Ásgeirsdóttir, head of analysis at the Directorate of Labour, said the agency’s August forecast still stood. It predicted unemployment would peak at 5.4 to 5.5 per cent in February and March, despite the rate coming in slightly below forecast in the past two months.

Ingólfur Bender, chief economist at the Federation of Icelandic Industries, said the construction downturn was most evident in housing, with lower turnover, reduced imports of building materials and more joblessness in the sector. He said unemployment in construction was well above the usual seasonal pattern. The federation estimated that just over 1,140 people in the sector were out of work in September, a 36 per cent increase from a year earlier.