From Iceland — Deep Recession Projected In Wake Of COVID-19

Deep Recession Projected In Wake Of COVID-19

Published April 6, 2020

Sam O'Donnell
Photo by
Danny Nicholson

A majority of corporate executives believe that a deeper recession will be felt in the wake of COVID-19. Economist Ásdís Kristjánsdóttir told Fréttablaðið that the greatest impact will be on the tourism sector, but all industries will feel the blow.

“This is in line with what we fear. Although the epidemic has the greatest impact on tourism and related industries, these results indicate that the impact is more widespread and extends to almost all sectors,” she said. “It is striking to see that executives of 90 percent of companies believe revenues will decrease but at the same time is not much of a surprise.” She added that while the economic cost of COVID-19 is high, there is still a great deal of uncertainty in the business sector, and the end is not in sight.

Deepest recession since World War 2

At the time of this writing, nearly six thousand people have been laid off, mostly in the tourism and transport industry. Ásdís pointed out that most European countries have seen their governments take action and bail them out financially. She suggested that in order to satisfy the public in Iceland, the government here ought to take similar action. “Companies that continue to see a significant decline in revenue must know what resources are available to take further action,” she said.

She also said that the next action package must take into account that the effects of the epidemic will last as long as or longer than the bleakest forecasts have anticipated thus far. The current projection in Iceland indicates that the epidemic will reach its peak in the second week of April. Foreign short-term indicators suggest that this recession will be one of the deepest since World War 2.

“It is important to look at what other governments are doing,” Ásdís said, citing other governments which have provided companies that are in significant economic trouble direct government subsidies to their fixed costs, or have loaned to companies with no interest. “Further postponing public charges may not be part of a solution to business problems, but create even bigger problems down the line that companies cannot cope with. The prerequisite for us to see economic growth again, and increase the number of jobs again, is that companies are not over-indebted when they start running again.”

The hardest hit industry

Gustaf Steingrímsson, economist at Landsbankinn Bank, echoed Ásdís’ sentiments, stressing that the situation in the tourism industry is very difficult. “The operating basis has been removed from hotels and other tourism companies while travel restrictions are in effect,” he said. He hopes that Icelanders will travel domestically this summer in order to mitigate the impact on the industry. “Icelanders were about ten percent of all those staying at hotels last year. If that number goes up this year, it will mitigate the blow somewhat, but the recession will always be great.”

The number of foreign tourists in Iceland has multiplied exponentially in the last decade. Gustaf says that in order to build that number again, it could take time. “The level of service in the tourism industry could be temporarily reduced. That will mean that it will take some time for us to regain the revenue we had from foreign tourists.”

As ever, those looking for more information or advice should go to the Icelandic Government’s excellent COVID-19 help page.

Tune into our daily COVID-Cast for a deeper dive into the day’s developments.

Note: Due to the effect the Coronavirus is having on tourism in Iceland, it’s become increasingly difficult for the Grapevine to survive. If you enjoy our content and want to help the Grapevine’s journalists do things like eat and pay rent, please consider joining our High Five Club.

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