Iceland Country brief

Background

Iceland, the least populated and most isolated of the Nordic countries, is located in the North Atlantic Ocean. Iceland covers an area of 103,000 square kilometres and has a population of approximately 300,000.

While Iceland is not a member of the European Union,it is a member of EFTA and the European Economic Area, which entitles it to access the EU internal market. Iceland is a member of NATO.

Political Overview

Iceland is a parliamentary republic with legislative powers vested in the Althing (parliament). The Head of State, President Ólafur Ragnar Grímsson, was re-elected on 27 June 2004 for a third term.

The Althing is made up of 63 members directly elected by proportional representation for four year terms. The last general election was held in May 2007. Iceland is governed by a coalition of the centre-right Independence Party (25 seats) and the centre-left Social Democratic Alliance (18 seats), ensuring a solid majority against the opposition which comprises the Progressive Party (seven seats), the Left-Green Movement (nine seats) and the Liberals (four seats). Leader of the Independence Party, Mr. Geir H. Haarde, has been Prime Minister since September 2004. The new government is committed to continuing the business-friendly economic and financial policies of the previous government.

Economic Overview

GDP growth in Iceland for 2007 was 3.8% and is forecast to slow to 0.4% in 2008. Unemployment has remained consistently low, rising to a high of 4.0% in June 2006. Inflation has fallen from 9.4% in 2002 to a forecast of 5.5% in 2008.

In recent years Iceland's economy has diversified into manufacturing and service industries, and new developments in software production, biotechnology, and financial services are taking place. The tourism sector is also expanding, with the recent trends in ecotourism. As one of the smallest countries in the world, however, Iceland’s economy is particularly vulnerable to global factors and it was severely affected by the international credit crisis during the first half of 2008. This resulted in an unprecedented fall in the value of the Icelandic krona, dropping more than 20 per cent against the Euro. The rate of inflation increased to almost 9 percent and the OMX Icelandic stock index lost a quarter of its value.

Seventy per cent of Iceland’s energy is renewable, presenting an environmental, economical and social advantage for the country. Ninety five per cent of Icelandic homes are heated by geothermal energy, at five times less cost than heat generated from oil. Iceland does not import coal or oil for heating.

Bilateral Relationship

Australia's relations with Iceland are friendly with whaling the only major issue of disagreement. Iceland rejoined the International Whaling Commission in 2002 after having left the organisation in 1992.

It is estimated that around 70 Australians are currently living in Iceland. Tourist traffic in both directions is low. There is a small Icelandic community in Australia of around 450 people.

In October 2002, the then Minister for Communications, Information Technology and the Arts, Senator the Hon Richard Alston, visited Iceland to discuss information and communications technology. During his visit Senator Alston also met with the President, Ólafur Ragnar Grímsson.

The Australian Ambassador to Iceland is accredited from Copenhagen, Denmark. Iceland has Honorary Consulates in Canberra, Sydney and Melbourne.

Bilateral economic and trade relationship

Two-way trade between Iceland and Australia in 2007 totalled A$33 million. Major exports in 2007 to Iceland totalled A$7 million, including wine and pearls and gems. Major imports in 2007 from Iceland totalled A$26 million, including plastic articles and food-processing machines.