Honoured guests: The news that WOW Air has discontinued operations broke this morning. With that, a part of the risk facing the Icelandic economy in the recent past has materialised. Last autumn, the Central Bank conducted a scenario analysis providing for the potential collapse of WOW. It was clear that the impact on the economy would depend to a substantial degree on how quickly, and to what extent, other airlines would step into the breach. The analysis was based on WOW Air’s size and operations in 2017. The WOW Air that closed shop this morning is about half that size, according to a very rough estimate. Nevertheless, it is clear that WOW’s collapse will have a negative impact on GDP growth, particularly in 2019. It is unlikely that this alone will push Iceland into a contraction this year, though. On the other hand, this shock comes on the heels of others, such as the failed capelin season. In addition there are risks that have not yet materialised, including the possibility that wage settlements will be out of line with price stability and the repercussions of a disorderly Brexit. If these risks do materialise, a temporary contraction cannot be ruled out. In this context, it matters greatly that we are now more resilient and better able to mitigate shocks than perhaps at any time in our history. I have already mentioned many of these strengths here today.
GDP contracted by nearly 13% from its Q1/2008 peak to its Q1/2010 trough. This caused unemployment to soar — although with a lag, as always — to a post-war high of over 8% in Q4/2010. Inflation had peaked at nearly 19% in January 2009 and had fallen back to about 12% by mid-year. At the same time, the Central Bank’s key policy rate had been lowered from 18% to 9½%. State and local governments were hit hard by the economic contraction and spike in unemployment. In 2009, the public sector deficit was nearly 10% of GDP, excluding one-off items such as the recapitalisaton of the Central Bank. Gross public sector debt peaked in 2011 at 92% of GDP. Iceland’s net external debt position was poor as well, with external debt exceeding external assets by nearly 130% of GDP at the end of 2008, excluding the estates of the failed banks. During the run-up to the financial crisis, Iceland’s international reserves equalled only 12% of GDP. They grew somewhat with the first drawdown of the loan in 1  connection with the economic programme with the IMF, to about 24% of GDP by mid-2009. Nearly all of Iceland’s reserves were financed with foreign credit. So the situation was difficult, but in addition, there was substantial uncertainty about what would happen next. Would we succeed in stopping the depreciation of the króna, which was still ongoing, partly because the capital controls weren’t working as intended?