Surge in services export revenues

Iceland’s Q4/2023 services account surplus of nearly ISK 29bn was due largely to tourism-generated export revenues. The tourism industry has reclaimed its position as Iceland’s largest export sector, and other services exports have gained steam at the same time. The balance on combined goods and services trade showed a slight deficit in 2023, and the overall current account balance was probably close to zero.

According to newly published figures from Statistics Iceland (SI), the services account balance was positive by ISK 28.5bn in Q4, virtually identical to that in Q4/2022. Services exports generated ISK 188bn in revenues in Q4/2023, while expenditures relating to service imports totalled ISK 160bn.

As in the past, the surplus was due mainly to revenues generated by tourism and related sectors. Travel, transport, and transit generated a combined ISK 53bn in net export revenues. On the other hand, there were deficits on trade in miscellaneous specialised services such as tech services (deficit ISK 11.4bn), recreation and entertainment (ISK 6.5bn), and specialist and consulting services (ISK 3.6bn).

Travel-related balance shows a hefty surplus

As the figures show clearly, even though Icelanders dusted off their travelling shoes after the pandemic, the surge in tourist arrivals carried the day. Export revenues relating to passenger transport and travel totalled ISK 110bn in Q4/2023, while expenditures due to Icelanders’ overseas travel came to ISK 56bn over the same period. This gives a surplus of ISK 54bn for the quarter, as compared to ISK 40bn in Q4/2022. We can assume, though, that the Q4/2023 surplus would have been somewhat larger had it not been for the seismic activity on the Reykjanes peninsula and the resulting slowdown in tourist visits during the final months of the year.

Year-2023 trade deficit ISK 17bn

Comprehensive figures on goods and services trade in 2023 are now available. In all, the surplus on services trade amounted to ISK 288bn in 2023, an increase of ISK 91bn year-on-year. Offsetting this handsome services account surplus was the goods account deficit of ISK 305bn, which is a record high in nominal terms. The deficit on goods and services trade combined was therefore ISK 17bn in 2023, as compared with a deficit of just under ISK 11bn in 2022.

The growing goods account deficit is due to the fact that even though goods imports shrank by 8% YoY in 2023, goods exports contracted even more, or by 10% in ISK terms. This, in turn, is due largely to unfavourable movements in the price of aluminium and aluminium products, plus a YoY decline in marine product export values.

Because the tourism industry hit its stride at the same time, there were significant changes in the relative weight of key export sectors’ contribution to export revenues, as the chart indicates.

Services exports gain momentum

In 2023, the tourism industry generated ISK 598bn in export revenues, or nearly one-third of Iceland’s total export revenues for the year. In comparison, marine product exports generated ISK 337bn (18.3% of the total) and aluminium exports ISK 324bn (17.6%). In other words, revenues from tourism equalled approximately 90% of revenues from marine and aluminium exports combined.

And last but not least, services exports from sources other than tourism have been picking up steadily. These other services brought in a total of ISK 314bn in export revenues last year and are therefore neck-and-neck with the aluminium and fishing industries in terms of revenue generation. Roughly speaking, it can be said that Iceland’s export revenues are sustained by four main pillars at present: tourism (32.5%), fishing (18.3%), aluminium manufacture (17.6%), and non-tourism services (17%). Exports of other manufactured goods account for another 10.4% of total export revenues, and exports of miscellaneous goods (agricultural products, for instance) account for the remaining 4%.

2023 current account balance probably close to zero

Data on two of the four key components of the current account balance are now available, showing the aforementioned trade deficit of ISK 17bn. The Central Bank (CBI) is set to publish figures on the two remaining components – factor income and cross-border transfers – a scant two weeks from now. These last items generated a combined surplus of just over ISK 5bn in the first three quarters of 2023. If Q4 figures are in line with those from previous years, the current account is likely to be broadly in balance for 2023 as a whole. In our recently published macroeconomic forecast, we projected that the current account balance for 2023 would turn out close to zero. The latest numbers seem to accord nicely with that estimate. Looking ahead, we expect small current account surpluses in 2024, 2025, and 2026. Thus Iceland does not appear to be in line for fat surpluses like those from the tourism boom of the 2010s or for gaping deficits like those prevailing in the decades beforehand.


Jon Bjarki Bentsson

Chief economist