Iceland Mag

5 Reykjavik

Iceland Mag

Economy

Iceland one the countries most dependent on tourism: Contributed 45% of post-crash recovery

By Staff

  • Exporting the Aurora The three major export industries of Iceland, energy intensive industries, fisheries and tourism, are all based on the unique natural resources of Iceland. Photo/Þórir Kjartansson

No other developed nation is more dependent on tourism than Iceland, a new report argues. Iceland is also unique in that tourism has contracted in other countries whose currency has appreciated in value. Despite a 20-30% appreciation of the Icelandic Króna the number of foreign visitors has continued to grow. Landsbankinn estimates that the number of foreign travellers will grow increase by 22% compared to the year before.

Tourism pulled Iceland out of recession
The report, which was published yesterday, makes an attempt to chart the impact tourism has had on the recovery of the Icelandic economy since the 2008 financial crash, as well as to estimate its future growth. Tourism contributed 40% of all exports in 2016, making it the largest export industry. This represents a fourfold increase when compared to the contribution of tourism prior to the tourism boom, which began in 2010. In 1991-2009 tourism contributed on average 11-13% to exports.

Read more: Tourism's contribution to GDP doubled since 2010: 8.2% of GDP in 2016

The indirect contribution of tourism to economic growth has also been significant. A sizeable part of construction in 2010-16 has come from demand for hotels and foreign visitors account for a part of the increase in retail sales and personal consumption. Landsbankinn estimates that when everything is included, tourism contributed 45% of the economic growth in the years 2010-16. 

Explosive growth of tourism slowing down
The report argues that the explosive growth in tourism since 2010 is finally showing signs of slowing down. Landsbankinn has accordingly revised its estimates for the growth in the number of visitors in 2017 downward, from 25% to 22%. Landsbankinn projects the number of visitors in coming years will also grow slower than previously believed. In 2018 the growth will be 8% instead of 10% and 5% in 2019, instead of 8%. 

Read more: From the editor: Is there an angry backlash against tourism in Iceland?

The bank argues there are no indications that the tourism industry could contract. Iceland is one of only a handful of countries who have not seen a contraction in the number of foreign visitors when their currency has appreciated. A stronger currency means foreign visitors pay more for the same services or goods. The report points out that all of these countries are small island nations with large tourism industries. The competitive edge of these countries tend to be a unique natural beauty, rather than low prices.

Related content

Editor's Picks