Over the past several years, Iceland has run a fat services account surplus, thanks primarily to tourism-generated export revenues, as the charts show. In 2019, for instance, the surplus on services came to ISK 260bn and the surplus on travel and passenger transport by air was more than ISK 266bn for the same period. In recent quarters, however, the surplus has more or less dried up, as could be expected. In Q1/2021, these items generated a deficit of nearly ISK 3bn.

The composition of export revenues changed dramatically with the arrival of COVID-19. Fortunately, marine product exports have more or less held their ground and industrial exports have broken even in recent quarters. The fishing industry delivered over ISK 66bn in export revenues in Q1, and industrial exports nearly ISK 57bn. Marine product exports therefore accounted for nearly 30% of total export revenues during the period, and exports of aluminium and aluminium products accounted for another 25%, while revenues from foreign tourists came to just under 4%. In 2019, however, tourism-generated export revenues accounted for 34% of the total, followed by marine product exports at 19% and aluminium exports 16%.

In Q1/2021, both goods trade and services trade generated a deficit – the first time this has happened since Q4/2007. The general rule in the past few years is that the services account surplus has outweighed the goods account deficit. In Q1/2021, however, the total trade deficit came to ISK 33bn,

and a deficit is expected in Q2 as well. Tourists are starting to come to Iceland in larger numbers, however, and the Q2 deficit should be considerably smaller than that in Q1.

Furthermore, we expect a turnaround in the second half of the year. In our recently published macroeconomic forecast, we project this year’s tourist arrivals at 700,000, the vast majority of them expected in H2. The associated services revenues will be many times greater than we have seen recently. Furthermore, it is not beyond the realm of possibility that intellectual property revenues in the pharmaceuticals industry will boost Q4 revenues this year, as they have in recent years. On the other hand, Icelanders’ zest for travel will probably grow by leaps and bounds as the pandemic recedes, and the domestic tourism industry and strong domestic demand call for substantially increased imports. In all, we expect the balance on combined goods and services trade to be all but flat this year. In the years to follow, the outlook is for a sizeable surplus once the tourism industry gets back into full swing.