U.S. border crackdown and unpopular policies weigh on Icelandic tourism outlook

A surge of negative news from the U.S.—including stricter border controls and Donald Trump’s growing unpopularity in Europe—is casting a shadow over Iceland’s tourism sector in 2025, according to a new report from Landsbankinn. The outlook is further clouded by broader global turbulence. Analysts suggest these developments are already dampening international travel demand and may help explain the year-on-year drop in tourist arrivals recorded in March.

The U.S. remains Iceland’s largest single source of foreign visitors, but economic and political headwinds could weaken that connection. Tourism Economics, a firm specializing in travel sector analysis, now forecasts a 9.4% drop in international travel to the U.S. this year—a dramatic reversal from their earlier projection of 9% growth. The sharpest expected decline is in visits from Canada, but waning interest across Europe is also a concern, potentially disrupting Iceland’s role as a transatlantic stopover. According to the report, this shift may be partly driven by recent actions and rhetoric from the American president, which appear to have dampened enthusiasm for U.S.-bound travel.

Despite the slowdown, not all indicators are negative. Data show that visitors who do come are staying longer and spending more, with modest growth in domestic card turnover in early 2025. Landsbankinn’s forecast anticipates a slight contraction in the tourism sector this year, followed by a gradual recovery over the next two.

Meanwhile, the once-feared impact of volcanic activity on the Reykjanes Peninsula has diminished. Despite international media coverage of the eruptions, the effect on tourist numbers has been limited. While visitors may have shortened their stays during past events, the report notes that recent eruptions have had less influence on travel patterns, signaling resilience in the sector.