The crisis-stricken Icelandic economy shrank by a record 6.5%i n 2009, having grown by 1% in 2008 and 6% in 2007, official data showed today.
'The present figures show that gross domestic product (GDP) decreased by 6.5% in real terms, a record in the Icelandic national accounts,' Statistics Iceland said in a statement citing provisional figures.
The sharp decline in GDP last year was largely due to a 20.1% plunge in domestic expenditure, with household consumption dropping 14.6% and government consumption dwindling 3%, as Iceland's fixed capital formation dropped 49.9%, the national statistics agency said.
On the up side, exports had grown 6.2% as imports fell 24%.
Iceland's once-booming financial sector ground to a halt in October 2008 when the country's major banks collapsed after borrowing beyond their means to fund ambitious investments abroad - their liabilities were once worth 11 times Iceland's total GDP.
Meanwhile, Icelanders look set to reject a deal to repay Britain and the Netherlands for losses from the collapse of the Icesave bank, but tomorrow's referendum could plunge the country deeper into crisis.
A large majority of Icelanders are expected to vote 'no' in the country's first referendum since it achieved independence from Denmark in 1944. The latest poll suggested that three quarters of voters would spurn the Icesave deal.
The legislation would see Iceland paying some €3.9 billion to Britain and the Netherlands to compensate for money they paid to some 340,000 of their citizens hit by the October 2008 collapse of online Icesave bank.
The bill was the subject of two drawn-out parliamentary debates last year before it passed in the house on December 31. Days later however, President Olafur Ragnar Grimsson refused to sign it into law, citing public opposition. Instead he called for the March 6 referendum on the deal.
In line with the Icelandic constitution, the bill temporarily became law. Iceland's 225,000 eligible voters will tomorrow be given the choice between saying 'yes, the Icesave law should remain in force' or 'no, it should become void'.
But if, as expected, they reject the law, observers caution the consequences could be dire. Britain and the Netherlands could for instance continue blocking progress on a $2.1 billion International Monetary Fund rescue package for Iceland until Reykjavik agrees to pay off its Icesave debt.
No repayment deal could also hit the Nordic country's European Union and euro currency membership talks, sink its credit rating and destabilise the leftwing government, which negotiated the agreement in the first place.
According to Economics Affairs Minister Gylfi Magnusson, just a few months delay in the IMF's rescue package to Iceland could send its economy spiralling down a full 5% this year, instead of the 2-3% recession forecast so far.
