Preliminary results for the year 2025 indicate that gross domestic production (GDP) increased by 1.3% in volume terms with the nominal level estimated at 4,956 billion ISK. In the fourth quarter, GDP is estimated to have decreased by 0.6% in real terms.
National Accounts figures for 2025
The main driver of economic growth last year was private consumption, which grew by 4.3%, while increased investment, public consumption, and inventory changes also contributed positively. Gross domestic final expenditure (GDFE) increased by 3.9% in volume last year. However, the contribution of foreign trade to economic growth was negative.
Revision of previously published statistics for the years 2022-2024
Along with the publication of the GDP first estimate for the year 2025, the previously published figures for the years 2022-2024 have been revised. Economic growth in 2024 was thus -1.3% instead of -1.2% in previously published figures. In 2023, GDP growth was 5.0% instead of 5.1% and in 2022 it is now estimated that GDP increased by 8.9% (previously 8.8%) in real terms.
GDP decreased by 0.6% in the fourth quarter
According to the preliminary estimate, gross domestic product (GDP) is estimated to have contracted by 0.6% in real terms in the fourth quarter of 2025 compared with the same period of the previous year. Private consumption, which increased by 5.5%, contributed strongly to economic growth, and public consumption also increased by 1.1%. However, a 12.5% decline in gross fixed capital formation pulled in the opposite direction. Taking inventory changes into account, national expenditure in the fourth quarter is estimated to have decreased by 0.5% in real terms compared with the same period of the previous year.
The contribution of foreign trade further reduces GDP with a negative contribution of 0.3% to economic growth in the fourth quarter.
Seasonally adjusted figures indicate that GDP declined by 0.8% in real terms between the third and fourth quarters of 2025.
Private consumption increased by 5.5%
Private consumption in the fourth quarter increased by 5.5% in real terms compared with the same period of the previous year. For the year, growth was 4.3%, compared with 0.9% growth the year before, indicating a notable acceleration in private consumption.
Domestic consumption increased overall in the fourth quarter, with household purchases rising across most categories of consumer goods, although there was a decline in alcohol and tobacco e.g. Household purchases of motor vehicles rose markedly for the fourth consecutive quarter following a contraction period in the previous year. Ahead of year-end, incentives to purchase vehicles emerged due to changes in excise duties on petrol and diesel cars and a reduction in rebates for electric vehicles, while the full rebate remained in effect until year-end.
Private consumption also grew substantially due to Icelanders’ expenditure on travel abroad, alongside modest growth in the housing component.
Government final consumption increased by 1.1% in fourth quarter
Government final consumption expenditure is estimated to have increased by 1.1% in real terms in the fourth quarter of 2025 compared with the same period of the previous year.
The increase in government consumption in 2025 is estimated at 1.2%. In nominal terms, government consumption is estimated to have risen by 8.8% and prices by 7.5%. Government consumption is estimated based on preliminary figures. The figures will be revised in August 2026.
Further details on government finance will be published on 12 March.
Gross fixed capital formation decreased by 12.5% in the fourth quarter
In the fourth quarter of 2025, gross fixed capital formation decreased by 12.5%, with the largest decline in residential housing at 15.6%, and a 15.3% decrease in business investment. However, public sector investment increased by 4.2% during the quarter, although these results are still subject to considerable data uncertainty.
Despite the contraction in the fourth quarter, total gross fixed capital formation for the year 2025 as a whole increased by 4.0%, driven primarily by a 7.5% rise in business investment. Public sector investment increased by 2.3%, while investment in residential housing decreased by 5.9%, following considerable growth the year before.
Imports of various types of computer components for data centers increased significantly in the fourth quarter of 2024 and continued to do so in the first and second quarters of 2025. However, in the third quarter the volume of these imports declined considerably, and they were relatively low in the fourth quarter of 2025. This has to a significant extent influenced the results of each quarter in terms of capital formation.
As in private consumption, an incentive to invest in vehicle purchases emerged as the year progressed, and it is estimated that capital formation in vehicles increased by 72% in 2025.
Foreign trade
The balance of trade in goods and services is estimated to have been negative by 24 billion ISK in the fourth quarter, which is a significantly smaller deficit than in the same quarter of the previous year, when it amounted to 44.2 billion ISK. Total exports decreased by 5.0% in real terms in the fourth quarter, driven primarily by a contraction in goods exports, following growth in the first three quarters of the year. In a similar manner, total imports declined by 4.2% in real terms in the fourth quarter, mainly reflecting reduced goods imports, after increasing during the first three quarters. Goods imports fell by 10.4%, while imports of services increased by 8.1% in real terms.
Minimal impact of inventory changes in the fourth quarter
In the fourth quarter of 2025, the total value of inventories decreased by ISK 15.9 billion compared with the third quarter, a decline similar in magnitude to that observed between the same quarters in 2024. The largest component of the fourth-quarter decline was a reduction of ISK 9.7 billion in marine product inventories, which is consistent with seasonal patterns in recent years. The value of aluminum inventories fell by ISK 5.4 billion in the fourth quarter; a substantial change compared to the same period in 2024 when the decline amounted to ISK 797 million. Other categories showed smaller changes, with oil inventories decreasing by ISK 552 million and other inventories declining by ISK 183 million. The unusually large changes in aluminum inventories can largely be attributed to an electrical equipment failure at Norðurál in October 2025.
Seasonally adjusted GDP contracted by 0.8%
Seasonally adjusted GDP contracted by 0.8% in real terms in the fourth quarter of 2025 compared with the third quarter. A closer breakdown reveals that in the fourth quarter of 2025, private consumption increased by 1.3% on a seasonally adjusted basis, while public consumption rose by 0.4%. Gross fixed capital formation, however, declined by 4.4%. Over the same period, seasonally adjusted exports fell by 2.6% and imports also decreased by 1.6%.
The production approach
Provisional estimates for the production accounts will be published on the 6 March.
It was not possible to complete the processing of the employment figures before publication, but the data will be updated as soon as possible.