Volcanic Eruptions in Iceland have hit the Labor Market, but not Trade

Why you should care: When natural disaster strike, we naturally assume that the economy will take a hit, citizens will work less and governments must invest more. This is not the case in Iceland where volcanic eruptions since December have not negatively impacted the economy in terms of trade and employment, significantly.

Introduction

In the past, volcanoes in Iceland have slowed tourism and impacted Iceland’s current account balance. When volcanoes began in December 2023, there was widespread worry that tourism will slow and there was limited data to gauge the impact volcanoes on tourism. However, recent current account data provides an indication of how the tourism sector has been impacted by volcanoes. In summary, the tourism sector has stayed rather resilient, contributing more to GDP growth in spite of continuous volcanic activity.

In November 2023, the total value of exports of services was estimated at 57.9 billion Islandic Krona (ISK), decreasing slightly from November 2022. Travel was estimated at 22.5 billion ISK, having increased by 5% compared with the same month last year. Meanwhile, the exported value of transport services is estimated at 18.7 billion ISK in November, an 11% rise from November 2022. However, the total value of exports fell 16% to 16.8 billion ISK.

Table 1: Table of Exports on a Monthlya nd yearly Basis