Iceland's economic growth is likely to pick up pace over the next year despite the downward revisions to growth in this year, Stephen Brown, an economist at Capital Economics, said.
Gross domestic product advanced 2.2 percent sequentially in the third quarter, reversing a 1.7 decline in the second quarter, data from Statistics Iceland showed on December 8.
"But GDP in Q1 and Q2 was revised down, showing larger contractions than previously thought," the economist observed.
As a result, annual GDP growth slowed to 3.1 percent in the September quarter, the weakest in two years.
"Very strong Icelandic growth in Q3 somewhat overstates the health of the economy, given that consumer spending was stagnant and exports slumped," Brown pointed out.
Surprisingly, quarterly consumer spending growth slowed to 0 percent from 2.8 percent in the second quarter and business investment slowed considerably following strong growth.
"Despite strong growth in the third quarter, there is some reason to be cautious," Brown said.
After excluding the first quarter, when the fishing strike affected trade, export growth was negative for the first time since the third quarter of 2015.
"This suggests that the strength of the krona is weighing on the external sector," Brown added.
However, the latest survey data show that consumer confidence jumped in October.
On past form, that leaves it loosely consistent with an acceleration in annual GDP growth to around 8 percent.
"Following the downward revisions to growth in the first half of the year, we now expect annual GDP growth to be closer to 3 percent this year than the 4 percent we previously forecast, the economist said.
Furthermore, Capital Economics expects growth to pick up a touch to 3.5 percent in 2018.
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