According to the first estimate, real gross domestic product (GDP) is estimated to have contracted by 1.9% in the second quarter of 2025 compared with the same quarter of the previous year. The main driver of the contraction was foreign trade, as a wider deficit in goods and services compared with the previous year resulted in a negative contribution of 5.8% to real GDP growth in the second quarter.
Domestic final expenditure partly offset the negative impact from external trade. Preliminary estimates suggest that gross fixed capital formation increased by 8.3%, household final consumption by 3.1%, and government consumption by 0.3%. Taking into account changes in inventories, real domestic final expenditure is estimated to have grown by 3.9% in the second quarter of 2025 compared with the same quarter of 2024.
Seasonally adjusted figures indicate that real GDP decreased by 0.7% compared with the first quarter of 2025.
For the first half of 2025, real GDP is estimated to have increased by 0.3% compared with the first half of 2024.
Private consumption increased by 3.1%
Household private consumption increased by 3.1% compared with the same quarter last year. Overall domestic consumption increased, primarily due to higher household expenditure on service-related goods. Household purchases of motor vehicles also grew for the second consecutive quarter, following a period of contraction in preceding quarters. Moreover, there was substantial growth in private consumption due to Icelanders’ expenditures on travel abroad, along with modest growth in the housing expenditures.
Government final consumption increased by 0.3%
Government final consumption expenditure is estimated to have increased by 0.3% in the second quarter compared with the same period of the previous year. In nominal terms, government consumption is estimated to have risen by 9.2% year-on-year, while prices are estimated to have increased by 8.8% over the same period, resulting in a real growth rate of 0.3%.
Further details on government finance will be published on 18 September.
Increase in GFCF by 8.3%
Gross fixed capital formation is estimated to have increased by 8.3% in real terms in the second quarter of 2025. Thereof, business sector GFCF is estimated to have increased by 13.6% in real terms, and public sector GFCF by 6.1%. However, residential housing GFCF is estimated to have decreased by 8.9% during the same period. Over the past three quarters, GFCF by business sector has increased significantly due to a rise in the import of computer equipment for data centers. As before, there is some uncertainty regarding public sector investment in the results for the second quarter.
Widening trade deficit
The trade balance in goods and services is estimated to have been negative by 73.4 billion ISK in the second quarter, representing a significantly larger deficit than in the same quarter of the previous year, when the deficit amounted to just over 22.9 billion ISK. As a result, the increased trade deficit had a negative contribution of 5.8% to real GDP growth in the second quarter.
Inventory changes decreased by 11 billion ISK
In the second quarter, the total value of inventories fell by 10.9 billion ISK (at current prices) compared with the previous quarter. The largest factor was a negative change in inventories within the fisheries sector, amounting to 10.3 billion ISK, though this decline was smaller than in second quarters of recent years. Oil inventories contributed positively by 321 million ISK, while inventories of aluminum, aluminum products, and ferrosilicon decreased by 991 million ISK. Overall, the contribution of inventory changes to GDP growth in Q2 2025 was 0.1%.
The amount of work hours decreased by 4.1% year-on-year
The total number of hours worked is estimated to have declined by 4.1% in the second quarter of 2025 compared with the same quarter of 2024. It should be noted that these figures are not seasonally adjusted, and Easter has a significant effect on quarterly results. This year, Easter fell in the second quarter, whereas in 2024 it was in the first quarter.
Seasonally adjusted figures on labour input are planned for release alongside the next national accounts publication at the end of November.
Seasonally adjusted GDP contracted by 0.7%
Seasonally adjusted GDP decreased in volume by 0.7% in the second quarter of 2025 compared with the first quarter of the year. When seasonally adjusted, private consumption grew by 0.5%, public consumption declined by 0.3%, and gross fixed capital formation increased by 3.9%. Over the same period, seasonally adjusted exports decreased by 3.0%, while imports rose by 1.4%.
Revision of previously published figures
A benchmark revision of the national accounts time series was carried out alongside the most recent publication at the end of May. Such revisions are typically undertaken every five years and aim to incorporate methodological improvements, better source data, and alignment with international standards. One of the changes made concerned the indices used to deflate trade in services. It was subsequently identified that the implementation of a new sub-index used to deflate exports in the travel item of trade in services had not been applied correctly. This has now been corrected, affecting national accounts time series back to 2011.
With each release of the national accounts, regular revisions are also made to previously published figures. These revisions occur when more detailed information becomes available for certain components of the economy. On this occasion, results for the years 2022–2024 have been updated based on more complete data.
According to preliminary figures* for 2024, GDP amounted to 4.588 billion ISK. Real GDP declined by 1% compared with the previous year, when it had increased by 5.2%. Considering population growth of 1.9% in 2024, real GDP per capita fell by 2.8%. Production account data have been updated in parallel with the revision of the expenditure account.
*About two months after the reference year ends, Statistics Iceland publishes the estimated gross domestic product (GDP) for the fourth quarter of the previous year, along with the first estimate of the total GDP for the year. This involves aggregating quarterly measurements using the expenditure approach. The first results, defined as preliminary figures, are published about eight months after the reference year ends. National accounts results are considered preliminary until about 26 months after the reference year ends, but they may still be subject to changes if necessary.