The strong upswing in the Faroese economy
that began in 2013 continued in 2014. According
to the most recent forecast, the nominal gross
domestic product, GDP, rose by 5.8 per cent, while
consumer prices fell by 1.0 per cent. Growth in
nominal GDP was driven by fish exports, which
increased in value mainly as a result of high prices
and rising volumes of farmed fish. The fall in oil
prices acted as a stimulus by improving the terms
of trade considerably. There are indications that
public and private consumption is increasing.
Employment is rising in most sectors, while unemployment
is low and declining.
The government budget deficit has decreased.
This is mainly attributable to budget effects of the
strong cyclical position and growth in fisheries.
On the other hand, measures to improve the underlying fiscal position are still required. Demographic
challenges are considerable. The Economic
Council for the Faroe Islands has performed
fiscal sustainability calculations. It is estimated
that a permanent fiscal improvement of 5 per cent
of GDP will be required in order to stabilise government
debt, which is currently at a low level.
Seen over a number of years, public consumption
and public investment have amplified cyclical
fluctuations. Planned investment projects in the
public sector and elsewhere in the coming years
are expected to be considerable in size and if the
boom continues, this could entail a risk of bottlenecks,
especially in the construction sector.
The high rate of growth in fisheries is attributable
to unusually favourable conditions in two of
the three main branches of the industry, namely
aquaculture and pelagic fishing, i.e. fishing in
open waters for e.g. herring and mackerel.