people leaving the unemployment register at present are going back to work. on the other hand, my concerns from last year concerning the low investment level and relatively weak export growth have not disappeared. it is true that business investment excluding energy - intensive industry and ships and aircraft is strengthening and, according to the forecast, will grow by 8 % this year, while total business investment as a share of gdp will rise over the forecast horizon, to about 11 % in 2014. it will still be below the 30 - year average of 12½ %, however. on the other hand, exports of goods and services will grow by about 2½ % this year and by an average of just under 2 % per year in 2012 and 2013. this is not a very cheery prospect, given that the real exchange rate of the krona is currently over 20 % below the historical average. it is important to bear in mind that low investment levels and weak export growth are related phenomena. a large share of iceland ’ s exports ( marine products and aluminium ) are subject to capacity constraints, and in some instances, increased export levels would require substantial investment. thus it is important to facilitate investment in export sectors. those who believe that monetary policy has been a critical factor after the real policy rate fell to the current – 1 % are mistaken, however. much more important are risk aversion in the markets, limited access to foreign credit, an uncertain operational environment, and impaired corporate balance sheets. bis central bankers ’ speeches chart 1 chart 2 chart 1 shows, on the one hand, how the economic recovery looks so far and how it compares with the central bank ’ s forecast through 2014 and, on the other, developments in unemployment over the same period. according to these data, gdp was similar to q4 / 2006 levels in q3 / 2011 but will rise back to the peak of the boom years towards the end of the forecast horizon. at the same time, unemployment will decline steadily to 4½ % near the end of the forecast horizon, and according to the forecast, the slack in the economy will have vanished by 2014. it is highly uncertain, however, just how much slack exists at this juncture. but inflation is the big change from the outlook around this time last year. instead of falling slightly below target and remaining there for some time, inflation has taken quite a jump in 2011. it did fall below target, but it stayed there only three months before taking off again, peaking at 5. 7 % in

quite the contrary : some indicators suggest the reverse. i know that i am not addressing all possible criticism with these points, but i hope that those listening to me will begin to ponder whether some of that criticism has perhaps been somewhat unbalanced. some criticism of monetary policy is more pertinent, however, and i would like to address three points. it has been asked why the monetary policy committee raised interest rates when the bank has forecast that inflation will subside markedly next year. does that forecast make the rate hike unnecessary? there are two answers to this. first, the rate hike is a part of the forecast, and if it is not implemented, the forecasted inflation path will no longer be the most likely one. bis central bankers ’ speeches second, the inflation outlook is uncertain and, in light of current inflation expectations, it would be imprudent not to take action. it has also been asked whether there is a transmission mechanism in place at present. do higher interest rates reduce inflation? it is a bit paradoxical to say that interest rates have little impact and then make a terrific fuss about them. be that as it may, the transmission mechanism is certainly damaged at the moment, and it was somewhat damaged before the crash as well. but there is a transmission mechanism in place. the weight of non - indexed, variable - rate loans has increased. low deposit rates have fostered a shift towards investment in real estate in the recent term, and some have expedited purchases of consumer durables. finally, there is some impact on the exchange rate in spite of the capital controls, both because of decisions by owners of offshore kronur on whether they expatriate their interest and because domestic residentsare subject to a repatriation requirement but not a conversion requirement. it has been asked why we are raising interest rates when there is no economic overheating and investment is at a minimum. it is true that the economy is not overheated, so rate hikes do not have the intention of affecting that. but interest rates do affect inflation even though the current situation does not entail overheating. these effects come through a stronger currency and lower wage drift. furthermore, it is very common that central banks begin to shift towards a neutral monetary stance by raising nominal interest rates before the slack has disappeared so as to avoid sharper increases later at the tipping point between slack and excess demand. examples of this are the european central bank ’ s rate hike earlier this year