This news is more than six months old

Bountiful winter for tourism; revenue growth in the offing

The past winter was a strong one for Icelandic tourism, and the adverse effects of economic developments abroad are nowhere to be seen. Travellers are keenly interested in Iceland, and the outlook is for tourism-generated export revenues to hit an all-time high this year. Foreign exchange revenues generated by the tourism industry will play a key role in narrowing Iceland’s current account deficit in 2023.

Newly published data from the Icelandic Tourist Board show that 142,000 foreign nationals departed the country from Keflavík Airport in April, the third-largest April total on record, after 2017 and 2018.

Americans overtook the British as the best-represented nationality among visitors to Iceland during the month, after a yet another winter season led by travellers from the UK. Nearly 27% of April visitors came from the US. British nationals were hard on their heels, however, with 24% of total arrivals, followed by tourists from Poland (7%), Germany (4%), and France (4%). There has also been an uptick in the number of Chinese visitors, who accounted for 3% of the April total.

In 2023 to date, 561,000 tourists have departed via Keflavík Airport, an increase of 63% year-on-year. This aligns with our forecast from early February. By now it is obvious that the widespread concerns – concerns we shared – about economic headwinds in the UK and mainland Europe and their potential impact on appetite for travel to Iceland have fortunately not materialised.

Prospects are favourable for 2023 as a whole, too. Tourism companies report very strong booking activity for the coming peak season, and interest in visiting Iceland seems to be holding its ground. In this context, it is worth noting that in the European Travel Commission’s (ETC) recent survey of Europeans’ travel plans, about 1.6% of respondents reported plan to visit Iceland when they travel abroad next, about the same share as for the other Nordic countries. Also noteworthy in this connection are figures from the UN’s World Tourism Organization (UNWTO), which show that nearly 6 million tourists visited Norway and 7.6 million visited Sweden in the last year before the pandemic struck.

This February, we projected that just over 2.1 million foreign nationals would come to Iceland this year. Based on the figures above, that forecast still seems valid.

Will revenues from tourism reach new heights in 2023?

Tourism-generated revenues have picked up strongly since pandemic-related travel restrictions were lifted just over a year ago. Statistics Iceland (SI) reports that export revenues from tourism and related sectors totalled ISK 448bn in 2022. Currently available data on this year’s services exports extend only through January, with revenues from foreign tourists’ consumption in Iceland totalling just over ISK 21bn and export revenues from transport and transit amounting to another ISK 14bn. Typically, just over half of transport/transit revenues stem from foreign tourists’ air travel with domestic airlines, although this pattern did not hold during the pandemic.

The figures above suggest that tourism-generated revenues in the first four months of 2023 may have been in the ISK 130-140bn range. For the sake of comparison, Iceland’s goods account deficit came to ISK 87bn over the same period. For 2023 as a whole, tourism revenues could climb as high as ISK 600bn, well above the 2018 record of ISK 510bn.

Naturally, these revenues will be offset by hefty expenditures due to the purchase of services by Icelanders overseas. In January, for instance, services imports totalled ISK 45bn, including nearly ISK 16bn for services bought by Icelanders while travelling abroad.

But in our estimation, it is clear that revenues and expenditures from cross-border travel are diverging again, and we expect hefty travel-related foreign currency inflows this summer and autumn. This is a large part of why we expect the current account balance to move towards better equilibrium this year, after a sizeable deficit in 2022.


Jón Bjarki Bentsson

Chief economist