Trade balance unusually unfavourable in April

The balance on goods and services trade was considerably more negative in April than in the months beforehand. The goods account showed a hefty deficit, and tourist numbers declined year-on-year for the first time since the pandemic. The outlook is for slow growth in external trade in 2024, after the recent surge driven primarily by the rebound in tourism.

A hefty goods account deficit …

The April goods account deficit was Iceland’s largest in half a year, according to recently released preliminary figures from Statistics Iceland (SI). It measured ISK 46.4bn, as compared with the monthly average of ISK 23bn in Q1/2024. This gaping deficit was due mainly to a jump in imports alongside relatively tepid growth in goods exports, with imports totalling just over ISK 119bn exports equalling a scant ISK 73bn.

Nearly half of the boom in goods imports stems from a surge in importation of investment goods (excluding transport equipment), which is probably due not least to the build-up of land-based aquaculture, where investment is very strong at present. In this context, the CBI pointed out in Monetary Bulletin that land-based aquaculture and data utilities combined would probably account for the lion’s share of this year’s projected 3.5% increase in corporate investment. This is positive in that both of these industries are foreign currency-generating export sectors.

The main driver on the exports side was a near-doubling of farmed fish exports, which generated nearly ISK 2.9bn in export revenues in April. Exports of other marine products and of manufactured goods grew much more slowly, owing to this year’s capelin catch failure and to the cutback in energy supplies to the energy-intensive sector, which in turn was due to relatively low reservoir levels.

As the chart shows, goods imports and exports have kept pace with one another quite well in the recent term, reflecting rather accurately the business cycle from before the pandemic until the past few months. In our macroeconomic forecast from late January, we projected sluggish growth in imports and a slight contraction in exports in 2024, and subsequent developments appear to be in line with that forecast.

… and a slower-than-expected rise in tourist numbers …

Roughly 137,000 foreign nationals departed the country via Keflavík Airport in April, according to new figures from the Icelandic Tourist Board. This represents a drop of 5,000 relative to the same month of 2023, making this April the first month since the waning of the pandemic to see a year-on-year decline in departures. Presumably, the timing of this year’s Easter holidays played into the situation, although it should be borne in mind that tourist numbers increased by only 7% YoY in March. In a continuation of the recent pattern, American and British tourists were the largest nationality groups by far in April, the US accounting for 24% of the total and the UK another 12%.

In all, around 593,000 tourists have departed via Keflavík Airport in 2024 to date, after staying for various lengths of time in Iceland. This is nearly 6% more than in the first four months of 2023 and totals 94% of the 2018 peak for the same period.. Nevertheless, it is a considerably smaller increase than we assumed in our January macroeconomic forecast, where we projected a nearly 15% YoY rise in visitor numbers over the first four months of 2024.

We also forecast in January that tourist numbers for 2024 as a whole would jump more than 9% YoY, to over 2.4 million. Developments since then indicate a markedly slower increase during the year. For example, according to its newly published Monetary Bulletin, the Central Bank (CBI) has revised its projected increase in tourist numbers downwards from its previous forecast and now expects just under 2.3 million arrivals this year. We agree that prospects for a YoY surge in tourism have dimmed in light of the newest data and indications of what lies ahead in coming quarters.

… but a balanced trade account is expected in 2024

On the whole, April appears to have been an unusually unfavourable month for Iceland’s external trade in goods and services. On the exports side, developments have been largely as we expected, plus the impact of Easter on tourist numbers, while on the imports side we think it most likely that April was an outlier from the broader stagnation or shrinkage that has characterised the past few quarters.

We expect modest growth in external trade this year and a slender trade surplus in 2024 as a whole. Most indicators suggest that this forecast remains valid.


Jón Bjarki Bentsson

Chief economist