In comparison with other years, the first eight months of 2010 have been quite strong in terms of the number of foreign tourists. Actually, this year ranks number 3 in terms of tourist numbers, which is very positive for the Icelandic tourist sector, particularly in view of the volcanic eruption that made a strong impact on air travel and guest arrivals in Iceland earlier this year. Since the beginning of the year, over 344,000 foreign tourists have left Iceland via the international airport, as opposed to 353,000 in 2009. The decline is 2.5%. Clearly, this figure would have fallen much less - and might perhaps have risen - if the volcanic eruption had not affected travel so strongly.

Icelanders are travelling abroad in greater numbers
New figures from the Tourist Board indicate that an ever-increasing number of Icelanders are indulging their desire to travel, with nearly 30,000 travelling abroad this August, as opposed to 24,000 in August 2009, for a year-on-year increase of 22.8%. This is in line with the trend throughout the current year, with the exception of April, which was severely affected by the Eyjafjallajökull eruption.

Since the beginning of the year, Icelanders¿ departures have risen by 10.7% year-on-year, but the increase would probably have been larger under normal conditions. In spite of the increase over and above 2009, however, far fewer Icelanders are travelling abroad than before the crisis. This is understandable, given the collapse of the Icelandic króna and the heavy financial blow sustained by many households. For example, departures in the first eight months of 2010 were 38.8% fewer than during the first half of 2008.


Real exchange rate on the rise again

This trend is in line with the rise in the nominal exchange rate during the same period: the nominal exchange rate rose by 2% MoM in August, and the CPI rose by 0.2% during the same month. The real exchange rate is likely to rise still further over time. The rationale for this belief is that the real exchange rate in terms of relative consumer prices remains well below long-term averages and, in our opinion, is still below a level that would ensure equilibrium in external trade. How much it rises, to what extent the rise will be rooted in increases in domestic wages and price levels, and how long it takes to reach an exchange rate that ensures this equilibrium cannot be predicted with any certainty, however.