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Iceland Is Getting Ready for a ‘Deeper Recession’

Iceland Readies for ‘Deeper Recession’ Amid Tourism Concerns

(Bloomberg) -- Iceland is preparing for a deeper recession this year amid dropping tourism arrivals and a failed capelin season, central bank Governor Mar Gudmundsson said.

“We are prepared for the possibility of a deeper recession, and the numbers we are getting on tourist arrivals seem to indicate that that may happen,” Gudmundsson said in an interview on the sidelines of a conference in Dubrovnik, Croatia. “There may be a fall in tourism numbers to the 2016 level and this may have a significant effect on households, but hopefully we’ll be out of this early next year.”

The bankruptcy of budget airline Wow Air delivered a blow to the Icelandic economy, prompting the central bank to cut its main interest rate by half a point to 4% last month. At the time, the central bank also said the economy will probably contract 0.4% this year.

“We have never been as well prepared in our history to deal with adverse situation as we are now,” he said. “We have policy space, with a lot of scope to cut rate if necessary.”

The government has also said that it’s standing by to boost stimulus should it be needed, preparing to trim planned surpluses.

The krona was little changed at 141.48 per euro as of 3:56 p.m. in Reykjavik. It has weakened about 6% this year.

--With assistance from Andrea Dudik and Ragnhildur Sigurdardottir.

To contact the reporter on this story: Jasmina Kuzmanovic in Zagreb at jkuzmanovic@bloomberg.net

To contact the editors responsible for this story: Andrea Dudik at adudik@bloomberg.net;Jonas Bergman at jbergman@bloomberg.net

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