According to first estimates, real gross domestic product (GDP) contracted by 1.1% in the second quarter of 2026 compared with the same quarter of the previous year. The main driver of the contraction was trade in goods, as a wider deficit resulted in a negative contribution of 2.9 percentage points to real GDP growth in the second quarter.
Gross fixed capital formation is estimated to have increased by 5.7% in real terms in the second quarter, while household final consumption rose by 0.8% and government final consumption by 1.2%. Considering changes in inventories, real domestic final expenditure is estimated to have increased by 1.6% in the second quarter compared with the same quarter of last year.
Seasonally adjusted figures indicate that real GDP decreased by 3.0% compared with the first quarter of 2026.
For the first half of 2026, real GDP is estimated to have increased by 1.3% compared with the first half of 2025.
Private consumption increased by 0.8%
Household final consumption expenditure increased by 0.8% in real terms in the second quarter, compared with the same period of the previous year. Domestic consumption generally continued to subside, with a decline in household purchases of non-durable goods and more modest growth in consumption of services than in recent quarters. Household purchases of motor vehicles declined during the quarter. Icelanders’ expenditure on travel abroad showed moderate growth and there was also mild growth in housing expenditures.
Government final consumption increased by 1.2%
Government final consumption expenditure is estimated to have increased by 1.2% in the second quarter compared with the same period of the previous year. In nominal terms, government consumption is estimated to have risen by 7.4% year-over-year, while prices are estimated to have increased by 6.1% over the same period, resulting in a real growth rate of 1.2%.
Further details on government finance will be published on 15 September.
Gross fixed capital formation increased by 5.7%.
Gross fixed capital formation (GFCF) is estimated to have increased by 5.7% in real terms in the second quarter of 2026 compared with the same quarter of the previous year. Within GFCF, business sector investment is estimated to have increased by 10.1% in real terms. However, GFCF in the public sector is estimated to have decreased by 5.0%, while investment in residential housing decreased by 3.7%.
The quarter saw a record-breaking level of investment in data centre related industries, surpassing the previous record, which occurred during the same period last year. The estimated volume increase is 10.6% in this sector. Some uncertainty remains in the estimates of public-sector gross fixed capital formation for the first and second quarters.
Widening trade deficit
It is estimated that trade in goods and services with foreign countries resulted in a deficit of ISK 87.8 billion in the second quarter, significantly larger than in the same quarter of the previous year, when the deficit amounted to ISK 66.2 billion. The balance of trade in goods showed a deficit of ISK 154.4 billion, while the balance of trade in services recorded a surplus of ISK 66.6 billion.
The widening deficit in merchandise trade therefore had a negative impact on GDP in the second quarter, reducing it by 2.9 percentage points, while trade in services provided a slight positive contribution of 0.2 percentage points.
Exports of goods increased by 2.3% in nominal terms, driven primarily by substantial price increases for fish and aluminum products. In real terms, however, exports of goods contracted by 13.8%. The 1.4% increase in imported goods in real terms can largely be attributed to activities related to data centers.
Changes in inventories decreased by 15.5 billion ISK
In the second quarter, the total value of inventories fell by 15.5 billion ISK (at current prices) compared to the previous quarter. The largest factor was a negative change in inventories within the fisheries sector, amounting to 12.4 billion ISK. Furthermore, oil inventories contributed negatively by 263 million ISK, while inventories of aluminium, aluminium products, and ferrosilicon decreased by 2.8 billion ISK. Overall, the contribution of inventory changes to GDP growth in Q2 2026 was -0.8 percentage points.
Seasonally adjusted GDP contracted by 3.0%
Seasonally adjusted GDP decreased in volume by 3.0% in the second quarter of 2026 compared with the first quarter of the year. When seasonally adjusted, private consumption increased by 0.1%, public consumption increased by 0.4%, and gross fixed capital formation increased by 18.5%. Over the same period, seasonally adjusted exports decreased by 6.7%, while imports rose by 13.1%.
Hours worked decreased by 0.9% year-over-year
The total number of hours worked is estimated to have declined by 0.9% in the second quarter of 2026 compared with the same quarter of 2025 while the number of persons working increased by 0.9%. However, the seasonally adjusted data shows a larger drop in hours worked compared to the first quarter of the year, 1.3%, and a smaller increase in persons working, 0.3%.
Revision of previously published figures
Alongside the publication of the first estimates for the second quarter of 2026, a regular revision of the national accounts for the years 2023 to 2025 has been carried out.
For 2025, revisions to trade in services account for a substantial part of the overall revision. The revised estimates are now based on more comprehensive information on payment card transactions, as well as observed data from small and medium-sized enterprises.
Updated information on trade in services has led to a downward revision of household final consumption expenditure. In addition, updated price indices used for deflating trade in services have affected volume growth estimates back to 2023.
Previous estimates of government final consumption expenditure for 2025 were based on preliminary figures. These estimates have now been revised based on more comprehensive data.
Revised information on public sector gross fixed capital formation has also had a significant impact on the 2025 results. Estimates of business sector gross fixed capital formation for 2025 remain subject to some uncertainty. More detailed information from the asset register of enterprises and unincorporated businesses will be incorporated in the next release of national accounts, scheduled for the end of November.
The revision of gross fixed capital formation for 2024 is largely attributable to a reassessment of expenditure on research and development, which is recorded as investment in the national accounts.
Results derived from the production approach to GDP have been updated on Statistics Iceland’s website in parallel with the revision of the expenditure-based GDP accounts.