Russia-Ukraine Conflict Means Losses for Icelandic Fishing Industry

fish fishing haddock

Icelandic seafood export companies are expected to suffer considerable losses due to the war in Ukraine, RÚV reports. The technology industry could be equally impacted by the conflict. Iceland’s Finance Minister stated he has no qualms regarding the country’s participation in economic sanctions against Russia and that Iceland must accept their potential impact.

Alþingi’s Industrial Affairs Committee held a meeting yesterday to discuss the economic impact of the war in Ukraine. Its chairman Stefán Vagn Stefánsson stated that it could be far-reaching, affecting both businesses and consumers in Iceland. The losses in the seafood industry are expected to amount to billions of Icelandic krónur, or tens of millions of US dollars.

Finance Minister supports sanctions

Finance Minister Bjarni Benediktsson stated that while the overall impact of the war on Iceland’s economy would be limited, it would affect some of Iceland’s seafood and technology companies considerably. “We must accept some impact, we have to be ready to sacrifice something in order to send a message and it remains to be seen what that [sacrifice] will be,” Bjarni stated, adding that he supported the international efforts to impose economic sanctions on Russia. “I have absolutely no doubts, and I am very happy that a very broad, far-reaching agreement has been achieved to do much more than we have done before, because it has often been criticised that some of what was done [in response to] the annexation of Crimea was too ineffectual.”

Seafood exporters shifted from Russia to Ukraine

In 2014, Russia set a ban on food imports from Iceland, along with several other countries, in response to sanctions following the annexation of Crimea.  Seafood exports made up around 90% of exports to Russia at the time. The value of Icelandic trade to Russia dropped from ISK 26 billion [$209m; €187m] in 2014 to ISK 4 billion [$32m; €29m] in 2018. In response to the ban, many Icelandic seafood companies increased exports to Ukraine, which have now been halted due to the war.

Iceland’s last government worked to increase trade with Russia, even establishing a Russian-Icelandic chamber of commerce in 2019. The focus was on technology exports, particularly in the food industry. In 2020, exports to Russia amounted to ISK 6.6 billion [$51.2m; €46.2m]. Those exports have also come to a stop now, as Russian companies buying Icelandic products are unable to pay for them in foreign currency since the ruble’s dramatic devaluation.

Icelandic Companies Increasingly Optimistic About Coming Months

Financial managers of Icelandic companies are more optimistic about their company’s future than they were last spring, according to a survey conducted by Deloitte and reported on by Viðskiptablaðið. Around a fifth of respondents reported that their company’s revenue is now similar to or higher than before the pandemic began.

The survey is conducted internationally twice a year by Deloitte. The last survey was conducted in March, when many parts of the world were experiencing their first wave of COVID-19. “The situation then was very dark and the results now indicate that the situation is not good. However it is gratifying to see that there is a lot less pessimism than last spring,” stated Lovísa A. Finnbjörnsdóttir, head of Deloitte Iceland’s financial consulting department.

Tourism CFOs Most Pessimistic

CFOs of companies in the commerce, services, and seafood industries were most optimistic while those is tourism were the most pessimistic. “It’s interesting how the difference is huge between industries,” Lovísa stated, though she said it was not surprising that export companies reported more optimism than others. Though some companies in the commerce industry had suffered, it was clear that Icelander’s consumption was easing the blow.

Likely no one is surprised that Icelandic tourism companies report the least optimism about their financial situation in the coming months. Three out of four financial managers of tourism companies said they were pessimistic about the future and that their income stream would not return to previous levels before the third quarter of 2021 at the earliest.

Nine per cent of respondents stated they did not trust themselves to estimate when the economic impact of the pandemic would begin to ease. Four our of five said their main goal in the near future was to streamline operations, while digital solutions were next on the list of priorities. Respondents also expressed more positivity toward the idea of taking loans, particularly as interest rates have lowered.

A Króna for Your Thoughts

Central Bank of Iceland governor Ásgeir Jónsson

To some, he is the face of the financial bubble as the chief economist of Kaupþing, ahead of the 2008 financial crash. To others, he is the perfect man to shape the Icelandic economy, with his expertise in monetary policy. The new man at the helm of the Central Bank of Iceland is Governor Ásgeir Jónsson.

This content is only visible under subscription. Subscribe here or log in.

Continue reading

Less Downturn But Slower Recovery for Iceland’s Economy

Goðafoss tourists Iceland

The Central Bank has lowered its interest rates by 0.25%, making the bank’s key interest rate now 3.5%. The decision is in line with the bank’s economic forecast, which projects less of a downturn in the near future than expected, but a slower recovery for the hard-hit tourism industry throughout next year. Arionbanki’s analysts share this outlook.

“According to the [Central] Bank’s new macroeconomic forecast, published in the August Monetary Bulletin, this year’s economic contraction will measure 0.2%, slightly less than was forecast in May,” a press release from the Central Bank reads. The bank cites several reasons for this change, including private consumption growth, and net foreign trade which have offset a contraction in tourism. The long-term economic outlook, on the other hand, is slightly less positive, according to the bank’s projections. “The GDP growth outlook for 2020 has deteriorated, however, as it now appears that it will take longer for tourism to recover after this year’s setbacks,” the press release states.

Tourists spending more and staying longer

Arionbanki analysts say the newest import and export figures from Statistics Iceland paint a better economic picture than many dared to expect following WOW air’s bankruptcy in March. Though tourist numbers have lowered significantly compared to last year, in general, figures from the tourism industry have turned out better than expected, partly due to the fact that foreign tourists are on average spending more per capita during their stay. “In light of the high card turnover growth per tourist compared to 2018, longer stays, and a weaker króna, it was expected that travel, or total tourist consumption, would contract less than the number of tourists,” the report states. “That became the case, and even more so, as tourist consumption grew by 0.1% year-on-year, despite a 19.2% reduction in tourists.”

Icelandair’s grounded jets outlast WOW’s effects

Central Bank Chief Economist Þórarinn G. Pétursson stated at a meeting today that the worsened long-term outlook is influenced by Icelandiar’s three Boeing 737 Max 8 planes which were grounded due to safety concerns. Icelandair announced on August 16 that the planes would remain grounded at least until next year, not until the end of October until previously expected. Þórarinn states that neither WOW air’s bankruptcy nor that of Primera Air had affected the revisions to the outlook.

In Focus: Up in the Air

WOW - Icelandair - Keflavík Airport

The world of Icelandic aviation has been showing signs of tremors recently. Even though the number of travellers in Iceland is at a high point, the two companies responsible for transporting them to the North Atlantic are floundering. Airlines Icelandair and WOW air, albeit vastly different, face similar threats to their business. Icelandair is the […]

This content is only visible under subscription. Subscribe here or log in.

Continue reading