International rating agency S&P Global Ratings has affirmed Iceland’s sovereign ratings at A/A-1 with a stable outlook. The rating agency assumes a recession in 2019 due to declining tourist arrivals, and that current account balance will swing into a deficit this year, but return to growth thereafter.
The stable outlook reflects strong fiscal and external buffers, mitigated by risks stemming from the volatility of Iceland´s small open economy and a potentially abrupt slowdown in tourism.
According to S&P, the agency could raise the ratings if the fiscal performance and external position strengthen significantly beyond current projections over the next two years. On the other hand, the rating agency could lower the ratings on signs of increasing balance of payments pressures or risks to the stability of the financial sector over the next two years. These could emerge if the current reduction in tourism flows is sharper than expected.
S&P Global Ratings research update (pdf)