Iceland is standing up to the buffeting it has taken in the credit markets and compares “very favourably” against other similarly rated countries, but the domestic economy is heading for a hard landing after years of overheating, according to rating agency Moody’s.

In its annual report on Iceland, Moody’s said on a quantitative and qualitative basis the country “looks better” on many measures to its peers, including low government debt, high per capita income, economic flexibility and its “pension system dynamics”.