Iceland has become one of the wealthiest and most egalitarian countries of the OECD, thanks to sound framework conditions, high participation, a skilled workforce and a culture of innovation. Yet the economy has slowed. While momentum is picking up again, the outlook is surrounded by considerable risks - from global tensions to domestic imbalances. Inflation is falling but still way above the target of 2,5 %. The labour market is tight and wage growth robust. Fiscal policy has often been pro-cyclical, and budget deficits are declining only slowly, calling for the introduction of an expenditure rule and public spending reviews in core policy areas. Comprehensive measures to lift foundational skills are necessary, including setting up national student and schools tests, focusing the curriculum, improving the quality of teaching and providing more Icelandic language programmes for immigrant children. To meet rising demand, the supply of electricity should be increased, notably by establishing a fast-track administrative procedure for key power generation and transmission projects. Reducing the regulatory and administrative burden to enter a market, easing restrictions in professional services, streamlining the insolvency framework and creating more of a level-playing field for all market participants are essential to enhance business dynamism and boost productivity growth.