National account results for the second quarter of 2023 show that the GDP increased in real terms by 4.5% from the same period the previous year. The economic growth was primarily driven by the growth of export earnings that can be attributed to tourism, which has grown rapidly in recent quarters.
In other respects, the effects of changing conditions in the national economy can be felt, which can be attributed to ongoing surge in inflation and rapid monetary tightening.
Total domestic expenditure, i.e. the sum of consumption spending and capital formation increased by 1.4% in real terms from the same period last year. However, it must be borne in mind that the country's population is rapidly increasing, thus given the 3.4% population increase, there was a 1.9% decline in total domestic expenditure per capita from the same period last year.
Adjusted for seasonal fluctuations, it is estimated that the GDP has increased in real terms by 2.2% between the first and second quarter of 2023.
Decrease in private consumption per capita
Overall, private consumption increased in real terms in the second quarter of 2023 by 0.5% from the same period the previous year, but taking into account population growth, it amounts to a 2.8% decline. This is a considerable turnaround as private consumption has been the driving force behind economic growth in recent months. A decline in spending by Icelanders abroad of almost 10% in real terms largely explains this reversal.
Slight increase in public consumption
The increase in public consumption by 1.6% in the second quarter of 2023 is similar to the pace of the previous year's growth, which, as in the case of private consumption, is below the growth of the population during the period. The quantitative change of wages in public consumption is estimated at 1.3% and the quantitative increase in goods and services is estimated at 1.9%. The turnover change of general government consumption is estimated at 9.3% and the price change at 7.5%.
Overall, the results show that capital formation in the economy in the second quarter of 2023 increased in real terms by 1.6% from the same period the previous year. At the same time as the capital formation of the business sector increased by 7.5%, there was a considerable decrease in the capital formation of residential buildings and the public sector investment. In terms of residential capital formation, the result is a 5.4% decline from the same period last year, but it is important to note that there is some uncertainty regarding the quality of data for this part of the capital formation. Public sector investment decreased by 9% year-on-year, which can largely be attributed to the smaller scope of the municipalities' public works.
Trade in goods and services in balance
In the second quarter of 2023, there was a surplus of around 3.6 billion ISK in trade in goods and services abroad. A deficit of just over ISK 84.1 billion ISK from trade in goods is offset by a surplus of just over ISK 87.7 billion ISK from trade in services.
In the first six months of the year, on the other hand, there was a slight deficit in trade in goods and services with foreign countries, or about 18 billion ISK. For comparison, there was a deficit of almost 7.9 billion ISK in the same period last year.
Small changes are observed in the stock of inventories in the national accounts this quarter. Overall, stocks are down by 17.5 billion ISK, which is mostly explained by an 18 billion ISK decrease in stocks of marine products.
Iceland is high on the economic growth list
Compared with other countries within the European Economic Area, the US and Japan, economic growth in Iceland was on the higher side. In international comparisons of this kind, seasonally adjusted figures for economic growth between adjacent quarters is usually considered. On that scale, economic growth in Iceland measured 2.2%, compared with unchanged GDP within the European Union (EU). The highest economic growth in the EU was measured in Ireland at 3.3%, but that growth is largely driven by increases in multinational dominated sectors affecting the Irish economy.
Working hours are increasing
Figures on the amount of working hours in the second quarter are in line with the results of national accounts. The total number of working hours increased by 4.9% compared with the same period last year. During the same period, it is estimated that the number of employed persons increased by 5.3% and that employment increased by 4.9%. A steep decline in working hours in agriculture, forestry and fishing is attributed to effects in the fishing industry.
Seasonally adjusted GDP increased by 2.2% between quarters
Seasonally adjusted GDP increased in volume by 2.2% in the second quarter of 2023 compared with the previous quarter, the first quarter of 2023. Seasonally adjusted, household consumption expenditure decreased in volume by 0.2% during the quarter compared with the previous quarter, government consumption expenditure increased by 0.5% and investment increased by 4.5%. In the same period, seasonally adjusted exports increased by 2.8% and imports increased by 0.2%.
Revised results of national accounts 2019-2022
Along with the publication of national accounts for the second quarter of 2023, Statistics Iceland is now publishing preliminary figures* for the year 2022, while the estimated GDP based on quarterly accounts was published last February 28. According to preliminary figures for 2022, the GDP for the year amounted to 3,797 billion ISK and increased in real terms by 7.2% from the previous year compared with 4.5% the year before. Considering population growth of 2.5%, GDP per capita increased by 4.6% in real terms in 2022.
Revision of GDP 2019-2022
The general rule for the revision of national accounts is that when the annual figures are published, in February and August, the results of three previous years are open for revision, but this time 2019 was corrected. Older results are considered final, but time series further back in time can be revised if necessary, e.g., due to a change in methodology. Along with the publication of the preliminary results for the year 2022, the results of the national accounts have been revised for the years 2019, 2020 and 2021.
Statistics on gross national income and production approach will be updated 6 September.