According to the results of national accounts, the estimated nominal value of gross domestic product (GDP) amounted to 997.8 billion ISK in the third quarter of 2022 and its growth (economic growth) 7.3% compared with the same period last year. Exports were the main driver of economic growth, but apart from them, household final consumption expenditure (HFCE) had the biggest impact. In the first nine months of the year, GDP in volume is about 7.4% higher compared with the same period last year, but close to 3.7% higher if compared with the same period in 2019, i.e. the period prior to the Covid-19 pandemic.
It is estimated that the growth of gross domestic final expenditure in the third quarter compared with the same quarter last year was about 4.8%, and of the sub-items, HFCE increased the most or by 7.2% in volume, gross fixed capital formation (GFCF) by 2.2% and government final consumption expenditure (GFCE) by 1.8%.
In the third quarter, there was a continuation of the strong growth of exports, as in the previous five quarters. It is estimated that the growth of exports was about 22.9%, which can largely be attributed to exported services. The growth of imports turned out to be high in parallel with the activity in the economy and amounted to about 18% compared with the same time last year. For the third quarter it is estimated that the contribution of foreign trade to economic growth was positive or by 1.9% and that the balance of goods and services surplus amounted to 4.0% of GDP compared to 2.1% in the same quarter last year.
The results of national accounts indicate that seasonally adjusted GDP in the third quarter contracted by 0.5% between the second and third quarter of this year.
GDP at constant prices higher than before the pandemic
When the pandemic hit in 2020 and preventative measures were in place, activity in the economy decreased. This can be seen in the development of GDP at that time. The results of national accounts indicate that GDP at constant prices has not been higher since the pandemic and in the third quarter it was 3.8% higher than at the same period in 2019. GDP per capita at constant prices, on the other hand, has not reached the same level and is about 2.2% lower compared with the same period in 2019.
Household final consumption expenditure growth 10.9% in the first 9 months of the year
In the third quarter of 2022, HFCE increased by 7.2% in volume compared with the same period in 2021, and in the first nine months of the current year it has increased by 10.9% in volume from the previous year. The growth of HFCE in the third quarter is mostly supported by the increased spending of Icelanders abroad, mostly due to tourism. On the other hand, the results of the national accounts show that in the third quarter, lower growth was observed in other sub-sections of HFCE, e.g. a decline in vehicle purchases by households, which have weighed heavily on HFCE growth in recent quarters.
Contribution of foreign trade to economic growth positive and surplus increasing
The growth of exports in the third quarter of this year is estimated at 22.9% compared with the same time last year, but as in the previous quarters, the growth can mainly be attributed to exported services which increased by 45.6% in volume from the previous year. From the previous quarter, the growth of seasonally adjusted exports in the third quarter is calculated to be 6.1%. It is believed that the year-on-year growth in imports was around 18.0% in the third quarter of this year, but as in the previous quarters, there is a strong growth in imported services. From the second quarter of this year, there is a 5.4% increase in volume in seasonally adjusted imports.
The national accounts estimate indicate that net exports’ contribution to economic growth is positive in the third quarter, or close to 1.9%, and therefore there is a continuation from the second quarter of the current year. The surplus of the balance of goods and services is estimated at 39.4 billion ISK in the third quarter or which amounts to about 4.0% of GDP compared with 2.1% at the same time last year. In the third quarter of this year, a deficit of 70.7 billion ISK was measured in the balance of trade in goods but a 110.1 billion ISK surplus in the balance of trade in services.
Government final consumption increased by 1.8% in the third quarter
It is estimated that the growth of GFCE was about 1.8% in the third quarter of 2022 compared to the same period last year, but the growth can largely be attributed to the public sector's purchase of goods and services. In the first nine months of this year, the growth of GFCE is measured at 1.9% compared to the same period in 2021. Public finances are discussed in more detail in the results published by Statistics Iceland on December 8.
Gross fixed capital formation growth 2.2%
In the third quarter of this year, GFCF as a whole grew by 2.2% compared with the same period of the previous year. Overall business sector investments increase by 0.7% in volume from the previous year as air transport activities had the most growth, but this is offset by a decline in information technology and also financial activities which can be attributed to the fact that real estate was transferred to the public sector during the quarter. Adjusted for this entry, the growth of business sector investments is measured at 5.7% during the quarter. In the first nine months of the year, it is estimated that the business sector investments have increased by 7.8% in volume compared with the same period last year.
It is estimated that the capital formation of the general government has increased by 13.5% in volume compared with the same period of the previous year, but decreased by 0.7% if adjusted for the aforementioned transfer of real estate from businesses. In the first nine months of 2022, it is estimated that the capital formation of the general government has increased by 11.9% in volume compared with the same period in 2021.
Similar to the last four quarters, a decline in residential investments is calculated year-on-year. It is measured at 3.4% based on the indicators obtained for the assessment. In the first nine months of the year, the decline in residential investments is measured at 5.4% compared with the same period of the previous year, which is quite similar to the development of the year 2021 when there was a decline of 4.6% for the same interval. Despite the ongoing contraction for almost two years, the percentage of residential investments in GDP is about 5.0%, which is considered high in a historical comparison since 1995.
Stocks of marine products explains the increase in inventories
In the third quarter, the total nominal value of inventories increased by 17.7 billion ISK between consecutive quarters, which can mostly be attributed to the increase in inventory of marine products, while at the same time there was an increase in the inventory of aluminum due to the increased production of aluminum companies. Additionally, there was an increase in inventories of oil, ferrosilicon and other products during the period.
Number of employed persons and working hours increased by 5.8%
It is estimated that the total number of hours worked increased by 5.8% in the third quarter of 2022 compared with the same period in 2021, which can largely be attributed to the increase in the number of hours worked in the NACE groups which include wholesale, trade, transport and operation of restaurants and accommodation. The number of employed persons also increased between years and by the same percentage or 5.8%. In the third quarter of 2022, the total number of working hours is approximately 5.7% higher than it was in the third quarter of 2019, prior to the pandemic.
GDP growth in the first nine months of the year the highest since 2007
It is estimated that GDP in the first nine months of 2022 has increased by 7.4% in volume compared with the first nine months of 2021, but growth for this period has not been this high since 2007. At the same time, gross domestic final expenditure increased by the same percentage or by 7.4%, of which HFCE grew by 10.9%, GFCE by 1.9% and GFCF by 5.2%. Exports increased by 22.9% in volume, while imports growth was 22.1%.