According to newly published figures from Statistics Iceland (SI), the surplus on external services trade totalled ISK 34.5bn in Q4/2024, about the same as the Q4/2023 surplus of ISK 34.1bn. The value of services exports totalled ISK 213bn during the period, offset by imported services valued at ISK 178bn.
2024: services surplus smaller and goods deficit larger than in 2023
The surplus on services trade was broadly unchanged year-on-year in Q4/2024. Tourism-generated revenues grew markedly between years, after contracting in the two quarters beforehand. The composition of export revenues has changed substantially in recent decades, and the share generated by tourism and intellectual property has grown steadily. The balance on combined goods and services trade showed a hefty deficit in 2024, but the outlook is for a better balance in the coming term.
As has frequently been the case in the past, the surplus is due to revenues from travel, transport, and transit, which far exceeded corresponding expenses. Other items were broadly in balance or showed a slight deficit. Naturally, the robust surplus on the items mentioned above is largely a reflection of activity in the domestic tourism industry. The sector began the winter well, with a more than 6% YoY increase in foreign nationals’ departures via Keflavík Airport in Q4.
In all, travel- and passenger transport-related revenues came to ISK 124bn in Q4, an increase of nearly 9% YoY in ISK terms. This was a welcome turnaround after the Q3 dip of almost 1 percentage point and the 7% contraction in the quarter before that. On the other hand, Icelanders’ appetite for travel grew stronger, with spending in these same categories rising more than 8%, to ISK 64bn during the period. International travel therefore generated ISK 60bn in net services revenues in Q4, up from ISK 55bn a year earlier.
Radical change in composition of exports
Export revenues are of pivotal importance for our small open economy, and fortunately. they have grown handsomely in recent decades. At the same time, the composition of export revenues has changed markedly since the turn of the century, when fishing and energy-intensive industry determined the overall outcome.
In the past quarter-century, there have been two major changes in the composition of exports:
on the one hand, revenues from services exports have grown from about a third of total revenues (in 1999) to around half (in 2024). Naturally, this is due for the most part to the advent of tourism as a key revenue-generating export sector. Revenues from tourism quadrupled in ISK terms between 2009 and 2024, for instance, and the sector’s share in total export revenues jumped from a scant 20% to 32%. In 2024, revenues from foreign tourists in Iceland and abroad amounted to ISK 521bn, or double the total from aluminium exports and 80% more than the total from marine product exports.
The other change is due to growth in intellectual property as a generator of export revenues. Intellectual property is something of an umbrella term covering sectors where “firms’ investment in research and development (R&D) is the cornerstone … and human resources are the chief resource in the sector”, according to the definition from the Federation of Icelandic Industries.
The intellectual property sector has grown by leaps and bounds in recent years. According to data from SI, it generated ISK 309bn in export revenues in 2024, an increase of 15% YoY. That puts it on a par with fishing and aluminium in terms of its share in total export revenues: intellectual property generated 16% of the total, as compared with 18% and 16%, respectively, for fishing and aluminium. In addition, the share of domestic value added in total export revenues is probably much higher than in the aluminium sector and somewhat higher than in the fishing industry. Finally, it is worth noting that the intellectual property sector has virtually inexhaustible growth potential, as it is not hemmed in by the input constraints affecting the other sectors: electricity supply in the case of aluminium, catch quotas in the fishing sector, and limits on infrastructure capacity and the natural environment’s tolerance of strain in the case of tourism.
In our recent discussion of the near-term outlook for exports, we projected that intellectual property and aquaculture will be among the key sources of export growth for Iceland, concurrent with relatively muted growth in conventional export sectors. The newly published figures harmonise well with that view.
Sizeable trade deficit in 2024
Preliminary figures on two of the three main components of the 2024 balance of payments have now been released. Services trade generated a surplus of ISK 262bn, or ISK 33bn less than in 2023. Goods trade told a different story, however, with a deficit of ISK 314bn, an increase of ISK 26bn YoY. The balance of combined goods and services trade was therefore negative by ISK 53bn in 2024, a marked deterioration relative to the 2023 surplus of nearly ISK 7bn.
Later this week, the Central Bank (CBI) will publish a full complement of balance of payments numbers, including preliminary figures on primary and secondary income. Presumably, the outcome will not be far from the deficit of 1.5% of GDP that we projected in late January. Further ahead, the trade balance – and therefore the current account balance – looks set to move steadily towards better equilibrium.
