Forecasting affected by tourism-related uncertainty
Because tourism is Iceland’s largest export sector, its recovery is of pivotal importance for the economy in the next few quarters. Job creation and growth in short-term export revenues therefore depend on developments within the sector.
In our newly published macroeconomic forecast, we project that 600,000 tourists will come to Iceland this year. Some 337,000 have already visited in the first eight months of the year, and we assume that another 260,000 will travel here in the final four months. If our forecast materialises, this year’s total will be less than one-third of the 2019 figure.
For next year, we expect tourist arrivals to more than double, to just under 1.3 million, and in 2023 we expect a 15% YoY increase, to nearly 1.5 million.
Developments in tourist arrivals are subject to considerable uncertainty, however. Because of this, we prepared alternative scenarios based on assumptions that are either more pessimistic or more optimistic than those in the baseline forecast. The assumptions and the forecasts themselves can be found in the Appendix at the end of the macroeconomic forecast. Year-2021 tourist arrivals could range from 560,000 to 700,000, and in 2022 the range is from 900,000 to 1.5 million.
Different economic scenarios
Developments in tourist arrivals will greatly affect economic developments in the coming term, with the strongest impact coming in 2022. To simplify, we assume here that the revenue generated by each tourist will be broadly in line with the average of the past year or so. But head counts are not the only variable of importance. A slower increase in tourist numbers, concurrent with longer stays and more activity from each visitor, could easily deliver the same economic benefit as the head count pattern sketched out in the baseline and the two alternative scenarios. The converse applies, of course, if the increase in tourist numbers is greater among those who stay for a short time and spend very little while in the country.