In a word: catastrophes.

Let me point you to a book called Iceland: The First New Society by Richard F. Tomasson. It's an older book; it was published in 1980, but there's a section called "The Comparative Development of the Icelandic Population until 1860" that I think may answer your question.

That section compares Iceland's pre-industrial population to that of Norway, which has a similar topography and similar climate. As the population of Norway grows, so should Iceland's, right? But no, we see something different.

In the late Middle Ages, Norway had a population double to five times that of Iceland. By the 1703 census, Norway had a population 10 times that of Iceland. Around 1860, it had a population 24 times that of Iceland.

What you find when you go back and look at the figures is that until the 19th century, Iceland had intermittent famines and decreases in population. There's a fascinating chart on page 69 of Tomasson's book that shows that Iceland's population growth was essentially flat between 1703 and 1823. In the former year, the country had 50,358 people. In the latter year, it had 50,088 people.

What happened? Volcanoes. Since 1700, there have been more than a dozen significant eruptions in Iceland. In 1757 and 1784, there were two mammoth eruptions that caused Iceland's population to decline by more than 6 percent and 10 percent, respectively.

Iceland has been more fertile than other countries in Western Europe, but its death rate was so much higher than those other countries in the 19th century that its growth was slow.

In addition, during the 20th century, many countries in Western Europe have benefited from immigration. Iceland has not. According to figures from Statistics Iceland, since 1961 more people have emigrated from Iceland than immigrated to it. Natural births mean the population is still rising, however.

I hope this answers your question. I'll be visiting Iceland later this month, so I was inspired to do some research.