Year in Review 2020: Business & Economy Skip to content

Year in Review 2020: Business & Economy

By Yelena

Photo: Golli. Finance Minister Bjarni Ben presents the government’s third economic response package, April 2020.

This year’s business and economy news undoubtedly centred on the COVID-19 pandemic and its impact. Here are Iceland’s biggest business and economy stories of 2020.

Tourism (and Icelandair)

As everywhere else in the world, the COVID-19 pandemic has had a devastating impact on the tourism industry, one of Iceland’s largest industries. Despite some government assistance and a trickle of visitors during the summer, Iceland’s tourism industry has come to a near-complete stop. Locals made up for a portion of the losses by travelling domestically this summer, encouraged by a government gift certificate, but the industry will likely take years to recover.

The country’s only commercial passenger airline, Icelandair, also struggled this year, as airlines did the world over. It let go 2,000 employees in April, setting an Icelandic record for the largest mass layoff. Further layoffs followed throughout the year. Icelandair’s contracts with pilots, mechanics, and cabin crew were also up this year and renegotiating them in the shadow of the pandemic was tumultuous, to say the least. The airline even let go all of its cabin crew after their union rejected one contract offer, later being condemned for “union-busting practices.”

Thanks to a combination of government support, a successful public stock offering, and other financial restructuring measures, the airline has weathered the storm, at least for the time being. Icelandair CEO Bogi Nils Bogason says the company’s position is now strong enough to make through to 2022.

Government Responds to Recession

Starting in March, the Icelandic government presented several economic response packages intended to mitigate the effects of the pandemic on businesses and individuals. The first package included support for businesses in the form of partial employment benefits for staff whose work hours were reduced, as well as investment in public construction projects. The second package provided additional investments in innovation and research, as well as subsidies for businesses forced to close. These early measures were criticised by some for being geared toward businesses rather than individuals, as well as for leaving out vulnerable groups such as self-employed workers.

While some of the measures provided immediate relief, others were mired in red tape and took months to come through. Some funding was geared toward specific struggling industries, such as a new fund to support media companies.

These response measures are expected to result in a treasury deficit in 2021. In December, the government announced its intention of selling state-owned Íslandsbanki to finance further social investment.

Collective Crisis

The year 2020 started out with strikes among labour unions, affecting schools and other services in the capital area. Once collective agreements were signed, it seemed that things had calmed down. Yet conflict on the labour market re-emerged in the fall when businesses argued that the economy had suffered so drastically they could no longer provide employees the working conditions outlined in collective agreements. The government eventually stepped in to resolve the dispute, successfully stabilising the labour market.

Central Bank Lowers Interest Rates

The Central Bank of Iceland did not sit idly by as the recession deepened this year, but implemented measures in support of the economy. The Bank lowered interest rates repeatedly throughout the year to encourage investment, and its key interest rate now sits at a historically low 0.75%. The bank’s economic outlook remains highly uncertain, as it stated in November, “economic developments will depend to a considerable degree on the path the pandemic takes.”

Success in Dire Times

Not all industries in Iceland have suffered during to the pandemic: as people around the world started looking for ways to pass the time at home, wool export shot up by 70%.  Thanks to Iceland’s success in containing the pandemic locally, and the instituting of strict regulations, Iceland’s film industry was one of the only to keep productions rolling throughout the year.

With more people spending their free time at home, it may not come as a surprise that the annual Christmas Book Flood was even more successful than usual, with sales reportedly up by 30%. Real estate sales have also remained strong all year, despite the recession. Finally, one Icelandic company is expanding directly due to the pandemic. Controlant is tracking vaccine distribution across the world for COVID-19 vaccine manufacturer Pfizer.

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