According to the preliminary estimate, gross domestic product (GDP) is estimated to have increased by 2.7% in real terms in the first quarter of 2026 compared with the same period of the previous year. The contribution of external trade is the main driver of growth, as a surplus in trade in goods and services results in a positive contribution of external trade to economic growth of 5.3% in the first quarter compared with the previous year.
A contraction in gross domestic final expenditure offsets the increase in external trade. This can be attributed to a decline in gross fixed capital formation, as the preliminary estimate suggests that GFCF decreased by 12% compared to the same quarter of previous year. In contrast, private consumption increased in real terms by 2.2% and public consumption by 0.8%. Considering changes in inventories, gross domestic final expenditure in the first quarter is estimated to have decreased by 0.9% in real terms compared with the same period of the previous year.
Seasonal adjustment, GDP is estimated to have increased by 3.7% in real terms compared with the fourth quarter of 2025.
Private consumption increased by 2.2%
Household consumption in the first quarter increased by 2.2% in real terms compared with the same period last year. Domestic consumption is generally slowing, and growth in household purchases of service related consumer goods was weaker than in recent quarters. There was, however, an increase in household purchases of motor vehicles. Private consumption also grew due to Icelanders’ spending while traveling abroad, along with mild growth in the housing component
Government final consumption increased by 0.8%
Government final consumption expenditure is estimated to have increased by 0.8% in the first quarter compared with the same period of the previous year. In nominal terms, government consumption is estimated to have risen by 8.3% year-on-year, while prices are estimated to have increased by 7.4% over the same period, resulting in a real growth rate of 0.8%.
Further details on government finance will be published on 11 June.
12.0% decrease in GFCF
Gross fixed capital formation is estimated to have decreased by 12% in real terms in the first quarter of 2026 compared with the same quarter of the previous year. Of this, capital formation in the business sector is estimated to have decreased by 12% in real terms, public sector capital formation by 18.5%, and residential housing investment by 8.3%. Investment in data centers remains strong, although considerably lower than in the same quarter of last year.
Surplus in external trade
The balance on goods and services is estimated to have recorded a surplus of ISK 5.9 billion in the first quarter, marking a substantial improvement from a deficit of ISK 66.5 billion in the same quarter of the previous year.
The turnaround in the external balance is almost entirely attributable to developments related to data centre activities in Iceland. In particular, imports of capital goods declined sharply, while exports of services increased by 66% in nominal terms.
As a result, net exports made a positive contribution to GDP growth of 5.3 percentage points, primarily reflecting the contraction in goods imports.
Inventory changes increased by 14 billion ISK
In the first quarter, the total value of inventories rose by 14,2 billion ISK (at current prices) compared to the previous quarter. The largest factor was a positive change in inventories within the fisheries sector, amounting to 11.5 billion ISK, mainly due to increased fishing of capelin. Oil inventories contributed positively by 822 million ISK, while inventories of aluminium products, and ferrosilicon also rose by 1,9 billion ISK. Overall, the contribution of inventory changes to GDP growth in Q1 2026 was 1.1%.
Seasonally adjusted GDP grew by 3.7%
Seasonally adjusted GDP increased in volume by 3.7% in the first quarter of 2026 compared with the fourth quarter of 2025. However, gross domestic final expenditure was unchanged, wherein private consumption decreased by 0.5%, public consumption grew by 0.2%, and gross fixed capital formation decreased by 0.5%. The growth in seasonally adjusted GDP in Q1 is therefore largely explained by more favorable foreign trade conditions than before, with seasonally adjusted exports increasing by 5,1% while imports decreased by 4.2%.
Production approach update
Indices used for deflation within the production approach in food manufacturing, C10–12, have been improved and updated. This also affects other industries measured at constant prices since the expenditure approach is the main method. Table THJ08421: Production approach components at constant prices by kind of activity has been updated to reflect these changes.
The amount of work hours increased by 0.2% year on year
The total number of hours worked is estimated to have increased by 0.2% in the first quarter of 2026 compared with the same quarter of 2025, while the number of employed persons remained unchanged year on year.