🇮🇸 Iceland’s Biggest Unions Call For Tourism Restrictions

In response to a recent interest rate hike by the Central Bank of Iceland, two of the island nation’s biggest unions have called on authorities to dampen the meteoric growth in the tourism industry, which they claim is causing the economy to over expand. 

As of 2023, 1.2 million tourists have visited Iceland, with the year set to comfortably break the record year 2018 when 1.3 million tourists came to the country of 400 thousand. 

High growth, coupled with low unemployment, high inflation and rising wages have led to concerns that the economy is overheating. Inflation stands at 7.6%, compared to 5.3% in the Eurozone and the latest hike by the central bank has brought the interest rate to 9.25%, compared to The European Central Bank’s headline deposit rate of 3.75%. 

Total exports increased by 10.8% in the first quarter of 2023 compared to the year previous, with the tourism sector being the main driver of growth. 

Finnbjörn Hermannsson, the president of The Icelandic Confederation of Labor (ASI) told national broadcaster RÚV that steps needed to be taken to stem the growth in the tourism sector. 

“The economy is clearly expanding and we have pointed out that the tourism sector is growing at a rapid pace,” Hermannsson told RÚV. “It would have been preferable if the government had sought to dampen this growth, which would have allowed the central bank to avoid the situation it currently finds itself in.” 

According to figures from the Central Bank of Iceland, the national wage index increased by 10% in 2022, with unemployment in July 2023 standing at 3.3%, compared to 7.6% in the Eurozone. 

Ragnar Þór Ingólfsson, chair of the union VR, said that the growth in the tourism industry was pushing up demand for labor and housing, which was driving the economy towards overheating. 

“Interest rate hikes are not going to address the problems facing us, we need direct actions, such as taxation on the tourism industry, or arrival fees. If the government and the central bank are sincere in controlling the expansion in the economy then initiatives like those are needed,” said Ingólfsson.