Icelandic Financial Market Digest 01. desember

Publisher: Íslandsbanki Research • Resp.Editor: Ingólfur Bender

Surplus on services trade unchanged despite rise in tourist numbers

In spite of a significant increase in the number of tourists visiting Iceland in the first three quarters of 2017, the surplus on services trade was virtually unchanged year-on-year. There are two main reasons for this: reduced foreign exchange revenue per tourist in ISK terms and Icelanders’ increased consumption spending abroad. The surplus on combined goods and services trade contracted by nearly 30% during the period, and it is clear that this year's current account surplus will be considerably smaller than last year’s. 


According to newly published figures from Statistics Iceland (SI), the surplus on external services trade totalled ISK 118 bn in Q3/2017, some ISK 5 bn less than in the same quarter of 2016, which is interesting because the number of foreign tourists visiting Iceland during this peak tourist season increased 16% YoY, according to figures from the Icelandic Tourist Board. Tourism was the largest item in services imports and exports during the quarter, and it generated the largest surplus, nearly ISK 75 bn. The surplus on transport and transit totalled just over ISK 63 bn. The largest deficit was on other services trade, or just over ISK 15 bn. 

Tourists frugal, while Icelanders loosen their belts

The services account surplus for the first nine months of 2017 was just over ISK 220 bn, an increase of only ISK 4 bn YoY, which must be regarded as newsworthy, given that the number of foreigners travelling to Iceland increased 28% over the period, according to Icelandic Tourist Board figures on passenger departures via Keflavík International Airport.

There are two main reasons for this. 

  • First of all, it is clear that each tourist generated less revenue in ISK terms this year than in 2016. SI’s figures on overnight stays show that tourist visits are generally shorter than before, and many indicators imply that they are more frugal with regard to spending on activities such as tours and restaurant meals. 
  •  Second, Icelandic travellers have been rolling up their sleeves and dusting off their credit cards. Their spending on travel and airfares increased 16% YoY over the first nine months of 2017. This uptick is borne out by Tourist Board figures on Icelanders’ departures via Keflavík Airport, which were also up 16% of the same period. 

Trade surplus shrinks markedly

SI also published figures this morning on combined goods and services trade for the first nine months of the year. In Q3, the trade surplus totalled ISK 70 bn, some ISK 30 bn less than in the same quarter of 2016. In the first three quarters combined, this year’s surplus was ISK 92 bn, which is 28% less in ISK terms than in 2016.


The reason for the smaller surplus is that while the services account surplus is broadly unchanged between years, as is discussed above, the goods account deficit has grown substantially, to ISK 128 bn in the first three quarters of 2017, as opposed to ISK 88 bn over the same period in 2016. The increased deficit on goods trade is due in large part to a surge in consumer goods imports and a contraction in marine product exports. 

In our macroeconomic forecast, published this past September, we assumed that this year’s current account surplus would be about 4.8% of GDP (the equivalent of about ISK 124 bn). In the first half of the year, it totalled about ISK 24 bn. Based on the figures above, the outlook is for our forecast to turn out reasonably accurate, although the surplus could turn out slightly smaller than we have projected. The Central Bank will publish current account balance figures for the first nine months of the year next Monday. 


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