Saturday, 18 February 2012

Iceland : are things really that good ?

We are constantly getting bombarded with how good things in Iceland are. In an older post I had raved on about how I consider Iceland’s currency devaluation not to be particularly successful (to be fair here, the first year after the Krona devaluation coincided with the first decline in the volume of international trade so this was bound to have had an adverse effect on Icelandic exports).

In this post I'd like to use some indicators that do not get much "airtime". Nonetheless, I think that they are rather interesting.

I stumbled upon figures for enterprise defaults in Iceland. Here’s the chart.

source: Statistics Iceland
As you can see there was a massive spike in 2011. Of course this doesn’t mean that the overall number of registered enterprises did decline since enterprise births could have outpaced enterprise deaths. As you can see from the next chart this was indeed the case.

source: Statistics Iceland

What are the implications of that for employment? Unemployment declined slightly. Thing is that at the same time, the activity rate (i.e. the ratio of labour force to total population) took a dive as well (If this trend does not reverse it could have adverse consequences on the saving rate as well as household consumption).

source: Statistics Iceland

The next chart though could explain this phenomenon.

source: Statistics Iceland, own calculations

As you can see the 2011 decline in unemployment is perfectly matched by the number of persons dropping out of the labour force, while employed persons remained unchanged. What's more, employed persons have not increased at all since 2008. If this unprecedented (by Icelandic standards) number of persons had not dropped out of the labour force then unemployment would have been higher. You can draw your own conclusions from that.

Another channel through which unemployment may have been kept in check could be emigration. Maybe part of the decline exhibited by the labour force in 2009 could be explained by the increased emigration. Net migration declined in 2010 and 2011 but remained negative, driven mostly by Icelandic citizens. 

source: Statistics Iceland

Finally, I want to take a look at some indicators which may provide us with a more down to the ground view of how Icelandic households are faring.

source: Statistics Iceland

As the chart makes obvious there is no improvement in households’ financial situation, it just deteriorated with a slowing pace or kind of stabilized. 

It’s getting late so let me wrap this up. Good night and may we all have a nice weekend…

P.S. I want to praise the excellent website of Statistics Iceland which offers a wealth of statistical data on iceland.

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