Iceland's A+ credit rating reaffirmed by S&P Global

The international rating agency S&P Global Ratings has reaffirmed Iceland’s A+ credit rating, citing a stable outlook, according to the Icelandic government's website.

Strong economy and institutional framework support rating

Iceland’s credit rating reflects its high GDP per capita, robust economic growth—outpacing most Western European nations rated by S&P—and a solid institutional framework. The country’s sound economic and fiscal policies further bolster its standing.

However, certain factors constrain the rating. Iceland’s economy remains vulnerable to natural hazards, including volcanic activity, as well as external uncertainties such as geopolitical risks, trade disputes, and fluctuating terms of trade. Additionally, the small size of the economy limits the effectiveness of monetary and economic policy in responding to global economic shifts.

Economic growth expected to accelerate

S&P’s stable outlook suggests that after a temporary slowdown in 2024, Iceland’s economy will regain momentum in the coming years, with fiscal and external deficits remaining under control.

The agency also assumes that potential disruptions—such as volcanic activity or international trade tensions—will not have a lasting negative impact on economic activity, fiscal stability, or the balance of payments. Furthermore, Iceland’s aluminum exports, primarily to the Netherlands and Germany, help shield the country from direct tariff risks.

Path to a credit rating upgrade

Iceland’s credit rating could be upgraded if public finances strengthen beyond S&P’s current projections. A more diversified economy that enhances resilience to external shocks could also support an upgrade, especially if global trade tensions ease without lasting negative effects.

Conversely, a downgrade could occur if fiscal performance or the balance of payments deteriorates beyond S&P’s baseline forecast. Potential risks include prolonged volcanic disruptions affecting tourism and growth, heightened exposure to global trade conflicts, or a substantial rise in defense spending.