Total revenue in the business economy excluding financial and insurance activities was approximately 6,298 billion ISK in 2022 compared with 5,215 billion ISK in 2021. This 21% increase as measured by each year’s price level was the most since 2006 when revenue grew by 24% year-over-year and well beyond inflation which was 8.3% in 2022. Demand expansion, inflation and interest rate increases were impactful on the year’s results where profits were high but revenue growth was tempered by rising financial and input costs.
The main results of the year were:
- Most increase in revenue since 2006
- Tourism industry became the second largest industry again
- Slowdown in real estate
- Record profit in manufacture of basic metals
- Increasing financial cost
Significant growth in tourism industries
Revenue grew most in tourism industries or by 79% to reach nearly 748 billion ISK. In real terms, revenue had thereby increased beyond the 2019 level before Covid-19 and the industry as such again the second largest in the country measuring approximately 12% of the total business economy. In 2019 the tourism industry had been the second largest industry but dropped to fifth in 2021. Significant growth was in all sub-industries but primarily in passenger air transport and travel agencies and related areas where revenues doubled as travel restrictions due to Covid-19 were fully lifted. Additionally, revenue increased by 67% in accommodation, 71% in renting of motor vehicles and 23% in food and beverage service activities.
Revenue increased by 35% in manufacture of basic metals due to sharply higher aluminium prices and weaker currency. Similar effects were felt in fisheries where revenue grew by 15%. Other industries also experienced significant growth, for example was 20% growth in wholesale and retail trade of motor vehicles, 19% in construction and 26% in motion picture, video and television programme production but that industry has experienced considerable growth in recent years with 75% increase in revenue since 2018.
Unlike most other industries revenue in real estate was nearly unchanged in 2022 compared with 34% growth and record profit in 2021. Total revenue in 2022 was 274 billion ISK compared with 275 billion ISK in 2021 and the industry was the only one among the 15 largest in Iceland to not experience revenue growth in the year 20221.
Most profits in real estate
Despite stagnation in revenue growth the real estate industry was the most profitable of all in 2022 recording 122 billion ISK profit. This was still 31% lower than in 2021 when the profit was 177 billion ISK but financial costs increased by 64 billion ISK in 2022 as interest rates rose and inflation increased measurably. The technology sector was very profitable in 2022 as profits tripled in information and communications technology from 27 billion ISK to 77 billion ISK due to asset sales. Overall, the high and medium high technology manufacturing and knowledge intensive high technology services increased its profits by 87% from 36 billion ISK to 67 billion ISK.
A complete turnaround was in results of the tourism industry which reported 23 billion ISK profit in 2022 compared with a loss of 3 billion ISK in 2021. Nearly half of the profit was due to leasing of motor vehicles but over all there were significant improvements in most areas of the industry as the effects from the Covid-19 pandemic diminished. As an example, profits of travel agencies increased fourfold while hotels and similar accommodation experienced fivefold increase.
Manufacturers of basic metals earned 84 billion ISK in 2022. This a 58% year-over-year increase and a record profit for the industry. On the other hand, profits of fisheries dropped by 12% to 78 billion ISK as rising input costs bit into the earnings. Profits also dropped in wholesale and retail trade by 18% and 25%, respectively. However, profits in the sale of motor vehicles rose sharply by 45% in the year. Overall, most industries were profitable in 2022 with the total business economy earning 751 billion ISK and 13% more than the year before.
Rising financial costs
Total operating expenses rose by 19% or 894 billion ISK for the business economy as a whole in 2022. Expenses increased in all main industries except in real estate where the impact was felt through significantly higher financial costs. Cost items were generally unchanged compared with the previous year as expenses grew in tandem with rising revenue. Goods and raw materials were 46.5% of total revenue compared with 47.2% in 2021. Depreciation and other operating expenses were mostly unchanged but the impact of rising interest rates started to become measurable as financial costs rose in most industries. In total, financial items went from -25 billion ISK in 2021 to -64 billion ISK (negative increase of 39 billion ISK) and the share of financial items in total revenue doubled from 0.5% to 1% in 20222.
Labour costs increased by 183 billion ISK or 17% but stayed relatively unchanged at 19.6% of total revenue compared with 20.1% previously. The number of employees grew by roughly 8% which was the most since 2002. Furthermore, labour costs per employee increased by 8.5% for the total business economy and roughly in line with inflation. Labour cost per employee was highest in fisheries and increased by 18% as the number of employees decreased by 2%. In total, there were around 7,700 people working in fisheries in 2022 but since 2013 the number of employees has steadily been declining by nearly 25%. The opposite was true of the tourism industry where the number of employees grew by 32% (6,300). In 2022 there were nearly 26 thousand people working in tourism industries and the most of any industry. Nevertheless, salaries in the tourism industry were nearly 50% lower than the salary in fisheries and the number employed still quite off the 2018 highs of 31 thousand employees.
Improved financial position
The financial position of the main industries improved in 2022 as higher profits resulted in 18% increase in equity. Additionally, total liabilities increased by only 10%,long-term debt by 8% and current liabilities by 14%. Leverage in the system thus decreased as assets, which increased by 18% year-over-year, were financed to a lesser extent with debt than before. Overall, 53% of assets were financed with liabilities (liabilities-to-assets ratio) in 2022 compared with 55% in 2021.
With regards to specific aspects of the balance sheet for the total business economy there was most notable a 34% increase in inventory of approximately 165 billion ISK in 2022. In general, inventory growth was quite noticeable in most industries but for various reasons that still were descriptive of the year’s economic developments. Following the reopening of the economy after a slowdown during the Covid-19 pandemic aggregate demand increased causing many firms to react by accumulating inventory which was also reflected in rising revenues. Higher commodity prices along with a weaker currency increased the value of inventory in export industries, primarily manufacture of basic metals and fisheries. In construction and real estate inventory levels rose due to increased works in progress and in high and medium high technology manufacturing and knowledge intensive high technology services there was a significant demand for products related to the healthcare sector that resulted in higher levels of inventory. Lastly, inputs became more expensive due to generally rising price levels and inflation which further increased overall expenses and dampened the positive effects from demand growth on the earnings of many industries in the business economy.
About the data
The income statement and balance sheet are compiled from roughly 35 thousand corporate tax returns of companies that have approximately 127 thousand employees in 2022. Figures for 2022 are preliminary and will be updated at the next release.
1 The real estate industry includes buying/selling of property, commercial and residential leasing, renting of land and land rights, brokerage and property management. Change in assessment values and market prices of properties can significantly influence revenue and profit (loss) of operating parties in the industry.
2 Financial items can include interest expenses and interest income along with gains (losses) on the sale of securities, dividends and mark-to-market changes in security prices. Changes in financial items in few industries can thus significantly impact the results of the total business economy. For example, in 2022 financial items for the telecommunications industry were positive by 31 billion ISK due to sales of assets which thereby raised the number for the whole economy and masked the impact of rising interest rates to some extent. Nonetheless, there were clear indication of rising financial costs as financial items were negative and increasingly so from 2021 to 2022.