Fishing and fish processing are the most important Icelandic industries, and the total catch in 1997 was 2.2 million metric tons. Food products, including fresh and processed fish, account for 75 percent of Iceland’s exports. Iceland is a leading producer of cod, and other major components of the catch include capelin, haddock, crustaceans, herring, redfish, and saithe. Coastal towns have extensive facilities for fish processing. In response to international pressure, Iceland suspended all whaling operations in 1989. However, in June 1992 Iceland withdrew from the International Whaling Commission, disputing the designation of some species of whales as endangered and claiming that certain species threatened Iceland’s commercial fish population.
World War II the government has aimed at a high rate of economic growth and full employment, and fluctuations in fish prices and catches have been an important influence on the economy. Iceland's real gross domestic product (GDP) increased by an average of about 4 percent per year after the war. After 1987, however, there was a slowdown in economic growth owing to limits imposed on fish catches in response to the depletion of fish stocks that had been overexploited for many years. From the late 1980s to the late 1990s the annual GDP growth rate averaged less than half what it had been. From 1994, however, there was a strong resumption of growth, mainly as a result of an improving fish catch. The inflation rate was high up to the end of the 1980s but thereafter declined. A low rate of inflation did not become a priority until the early 1990s, but Iceland now enjoys as low a rate as the other northern European countries. Unemployment has remained low.
Iceland's Scandinavian-type economy is basically capitalistic, yet with an extensive welfare system, low unemployment, and remarkably even distribution of income. In the absence of other natural resources (except for abundant hydrothermal and geothermal power), the economy depends heavily on the fishing industry, which provides 70% of export earnings and employs 12% of the work force. The economy remains sensitive to declining fish stocks as well as to drops in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon. The center-right government plans to continue its policies of reducing the budget and current account deficits, limiting foreign borrowing, containing inflation, revising agricultural and fishing policies, diversifying the economy, and privatizing state-owned industries. The government remains opposed to EU membership, primarily because of Icelanders' concern about losing control over their fishing resources. Iceland's economy has been diversifying into manufacturing and service industries in the last decade, and new developments in software production, biotechnology, and financial services are taking place. The tourism sector is also expanding, with the recent trends in ecotourism and whale watching. Growth has been remarkably steady over the past five years at 4%-5%.
