Iceland tourism slump ‘to end’

Iceland’s central bank is prepared to cut interest rates again as an economic downturn is nearing a bottom amid a collapse in its tourism industry.

Central bank governor Asgeir Jonsson, in an interview, said there was scope for more easing after cutting the benchmark rate by a quarter of a point to 3.5% in his first act since taking over this month.

That follows two cuts by his predecessor this year. “There could be a leeway for further rate cuts, especially if inflation continues to slow,” he said.

The bank has now trimmed its prediction for an economic contraction to 0.2% this year.

Mr Jonsson said that while tourism numbers have slumped, the “positive news” is that each tourist is spending more and that the nation’s old mainstay, fishing, has also been “going well”.

Central bank cuts rates for a third time amid tourism collapse Iceland’s economy has cooled rapidly after the collapse of Wow Air threw the nation’s tourism industry into turmoil.

Catering to foreign visitors has emerged as Iceland’s most important industry, in the wake of banking crisis that brought the country to its knees in 2008.

Tourism slid by 19% in the second quarter as the number of flights slid by a quarter. Inflation expectations have also come down, according to the central bank’s August survey.

Wow Air’s collapse is impacting Icelandic tourism and growth but Mr Jonsson said the worst could now soon be over. The central bank sees the economy rebounding to 1.9% growth next year and 2.7% in 2021, according to new forecasts.

The consumer price index will drop rise 2.4% next year and 2.3% the following year. The current forecasts indicate that the “bottom will be reached this winter,” he said.

— Bloomberg