In the latest economic outlook for the Faroe Islands, there remains a sense of cautious optimism. Nicolai Risager Christensen, an economist and co-author of a comprehensive analysis from Danmarks Nationalbank, notes that while the Faroese economy continues to show progress, the momentum in the labor market appears to be slowing compared to the bustling activity witnessed in the wake of the pandemic.
Danmarks Nationalbank, the central bank overseeing the economic landscape of the Commonwealth of Nations, provides a keen watch on developments across the Faroese and Greenlandic economies. The new analysis highlights that the region’s economic horizon is shrouded in uncertainty, particularly for its export sector, which is predominantly reliant on fishing and aquaculture.
“The export market is highly susceptible to fluctuations in international trade dynamics and customs regulations,” Christensen explains, noting that recent reductions in fishing quotas expected for 2026 also contribute to this instability. Such factors can pose significant challenges for a small, open economy like that of the Faroe Islands, creating a pressing need for enhanced economic resilience.
Despite these concerns, the Faroese economy is still bustling with activity, evidenced by a tight labor market and an uptick in housing prices. Lending has been active as well, especially for businesses, signaling a robust interest in growth.
Navigating Tides of Uncertainty
For many years, the Faroe Islands enjoyed some of the highest economic growth rates in Europe. However, as noted in the report, the pace has moderated following several years of rapid expansion directly linked to the fishing and salmon farming sectors. The forecast for 2024 suggests a modest GDP growth of 0.8%, a decline from the over 3% growth recorded between 2021 and 2023. Yet, projections remain optimistic for 2025 and 2026.
According to Danmarks Nationalbank, the increasing geopolitical complexities and impending reductions in individual fishing quotas underscore a trend of great uncertainty. These influences can have profound ramifications for the Faroe Islands’ economic growth and public finances. Therefore, the bank advocates for policies focusing on bolstering the economy’s robustness against such external shocks.
A Focus on Exports and Labor Dynamics
The recent economic boom in the Faroe Islands has driven employment to high levels, with virtually no unemployment reported. Yet, the influx of foreign labor has begun to taper, while falling prices for farmed salmon have exerted pressure on export revenues.
In the last year, the Faroe Islands saw a slight uptick in merchandise exports, with total annual revenues hovering around DKK 13 billion—of which fish and fish products account for an impressive 93%. However, fluctuations in both prices and quantities have been pronounced, particularly following reductions in fishing quotas across various species.
The landscape of pelagic fishing is particularly complex with expected significant cuts in quotas. In a recent agreement involving the Faroe Islands, Iceland, Norway, and Great Britain, a substantial 41% reduction in the blue whiting quota was reached, while the herring quota saw a modest increase. Nonetheless, a resolution regarding the mackerel quota remains pending, as experts suggest a 70% cut is advisable due to declining fish stocks.
Salmon Farming: A Dual Challenge
On the salmon farming front, production has surged, but prices have plummeted due to increased global supply. From January to August 2025, for instance, the average export price of Faroese salmon fell by approximately 37%. Despite this, the volume of salmon exported increased by around 23% compared to the same period the previous year, suggesting a strong demand that is anticipated to push exports past 100,000 tonnes in 2025—more than double the figure from 2011.
Companies like Bakkefrost, which dominate the industry, are increasingly influencing the overall Faroese economy. Today, salmon exports constitute nearly half of total merchandise exports, with rising shipments to the United States playing a key role in this trend.
Looking ahead, an upswing in global demand for salmon could bode well for the Faroese economy in 2026, providing a glimmer of hope amid an otherwise uncertain economic climate. As policymakers consider the road ahead, the imperative to foster a resilient and adaptable economy remains at the forefront.