First the good news:
Iceland’s real gross domestic product grew by 1.2 percent in the July-September period from the previous quarter, the first quarterly increase since the same period in 2008.
Then the less good:
That the economy was not yet out of the woods was made clear by data showing that in the third quarter, G.D.P. shrank by 2.1 percent, on an annualized basis, from the year-earlier period. For the first nine months of the year, the decline was 5.5 percent.
Arsaell Valfells, a professor at the University of Iceland, says “We’ve basically gone back to 2003 in terms of the level of standard of living.” Years worth of growth wiped out, in other words.
The scary thing is that, as Paul Krugman observes, Iceland is doing better than comparably situated countries. Massive collapse in the value of your currency takes a gigantic bite out of living standards, but seems to be a superior way of allocating the losses entailed by a crash than any other. Iceland’s hidden advantage here is that the country is tiny (Iceland is to Sweden as Sweden is to the USA) so it can have a crash devaluation without disturbing the global economy as a whole.