Published on : Thursday, March 16, 2017
After a global and massive financial crisis nine years back, the government of Iceland on Tuesday declared that the country now has economic stability, ending long-standing restrictions on the flow of money into and out of the country. Iceland’s economy expanded 7.2% last year, which is indeed a remarkable comeback since 2008. However, although Iceland is closing a troubled chapter in its economic history, the country is facing new challenges with its growth rebounding and some say that it’s too quick for the country’s good. As the economy has stabilized, a leap in tourism is stoking a housing construction boom, potentially raising new risks of overheating and inflation.
Icelandic authorities encouraged growth in tourism, fisheries, tech start-ups and renewable energy. With the cheap Krona, tourism took off much faster than other new ventures because visitors could see the Northern Lights and the rugged Icelandic landscape at a steep discount. Today, tourism has become Iceland’s biggest industry, overtaking fishing and banking. With the number of visitors approaching 2 million a year, tourism revenue topped $3 billion in 2015, a third of the country’s export earnings.
Tourism is also the single biggest employer, creating lot of jobs. Unemployment rate has fallen to a near record low of 2.6%. Many Icelanders are pouring money into services and new construction, and cranes keep rising across the country. And therein lies the trouble. In a bid to reduce the country’s reliance on finance, Icelanders are wondering if they may have planted the seeds of another bubble.