Icelandic economy faces moderate slowdown amid tourism decline and decreased exports

Recent analyses from Íslandsbanki indicate that the Icelandic economy is facing a moderate slowdown, contrary to previous optimistic forecasts. The economic balance is being sought after a period of rapid growth, signaling a potential shift in momentum.

In the bank’s national economic forecast, published in late May, a growth rate of 0.9% for this year was predicted, described as relatively slow historically. However, current insights suggest that actual growth may be even less than anticipated.

Several factors contribute to this outlook. Specifically, in the tourism sector, contraction appears more likely than growth this year. Given that tourism is Iceland’s largest single export, this decline could have significant repercussions on various economic indicators. Additionally, a decrease in fish stock and energy cuts to aluminum smelters have already negatively influenced export projections.

Recent data shows a slowdown in domestic card transactions following a strong start to the year. Households seem to be tightening their finances, highlighted by a 50% year-on-year drop in new vehicle registrations for individuals in June, along with a decline in interest in purchasing homes, cars, and international travel.

Surveys reveal mixed expectations among business leaders, with some remaining optimistic while others show pessimism about near-term prospects. The conclusion of the analysis suggests that while the economy is indeed cooling, this trend does not appear excessive. Instead, it may represent a natural adjustment towards better equilibrium following a period of expansion.