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UPDATE 1-Iceland's economy grows at fastest pace since crash
March 9, 2017 / 12:05 PM / 9 months ago

UPDATE 1-Iceland's economy grows at fastest pace since crash

(Adds analyst comment, background, detail)

COPENHAGEN, March 9 (Reuters) - Iceland’s GDP jumped 11.3 percent in the final quarter of 2016 from the same period a year before, the fastest pace of growth since before the financial crisis and raising concerns that the economy may be overheating.

After an economic crash and the collapse of its banking system in 2008, gross domestic product has surged in the last two years, helped by the floods of tourists visiting Reykjavik’s trendy bars and the country’s stunning geysers.

Preliminary data from the Icelandic statistics office on Thursday showed GDP was 11.3 percent higher in October-December than in the same quarter of 2015 -- the fastest rate of growth since late 2007, shortly before the financial system imploded.

“While there are growing pressures in the economy, we are not seeing signs of overheating of anything like the scale we saw 10 years ago,” Islandsbanki economist Jon Bentsson said.

“How far this is going to continue is an open question.”

Third-quarter annual growth was revised to 9.6 percent.

For the full year, the economy expanded 7.2 percent in 2016 after 4.1 percent growth the previous year.

On a seasonally adjusted basis, Iceland’s GDP rose 2.6 percent from the previous three months, the data also showed.

In January, Standard & Poor’s upgraded Iceland’s credit rating to A- from BBB+ based on a strong current account surplus and higher central bank currency reserves.

The rating agency said a full lifting of capital controls could improve the rating further, although it also pointed to the risk the economy would overheat.

Iceland hopes to remove the last remnants of capital controls imposed after the crisis this year.

Inflation is below target even with the economy running red-hot, and the central bank may be set to ease policy to tame a strengthening Icelandic crown.

“The krona’s appreciation means that there is a large chance of a rate cut at next week’s meeting,” Capital Economics said in a note.

“But while we expect a rate cut soon, on balance we think that the bank will wait until the following meeting in May.”

Reporting by Simon Johnson and Daniel Dickson; Editing by Catherine Evans

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