While Europe is recovering from the financial and sovereign crises at a very moderate pace, Iceland seems to have completely reversed one of the worst banking crises ever seen, where three banks with assets in excess of 10x the country's GDP suddenly collapsed. Almost 10 years after the peak of the crisis, when the central bank had to impose capital controls to avoid a massive outflow of money, the country has now returned to free capital movements. While nine years ago capital outflows were a problem, today the central bank would be happy if some money exited the economy, which may be overheating.
But, with interest rates at 5%, unemployment at 3.1%, and the economy growing at an annual pace of 11.3% (4Q 2016), why would investors want to take their money out of Iceland? While the central bank is imposing some restrictions to stem hot money flows, I doubt the Icelandic krona will decline over the year, in particular at a time when the Trump reflation trade is losing momentum and looks more like a mirage than like a real thing.
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