Gross Domestic Product (GDP) is estimated to have decreased by 10.4% in volume in the third quarter of 2020 compared with the same quarter of 2019. In comparison, GDP in the Eurozone is estimated to have decreased by 4.4% in the quarter, compared with the same quarter of 2019. During the third quarter, gross domestic final expenditure, the aggregate of household and government final consumption expenditure and gross fixed capital formation, decreased by 2.7%.
This sharp fall in GDP in the third quarter can therefore largely be attributed to the negative effects of external trade. The largest decrease is in tourism exports, which decreased by 77% during the period compared with the third quarter of 2019. Measured at current prices, the decrease in exports of tourism and transport amounted to close to 139 billion ISK in the third quarter of 2020 compared with the same period in 2019.
Household final consumption expenditure (HFCE) is estimated to have decreased by 2.3% in volume in the third quarter of 2020 compared with the same quarter of 2019, decrease in gross fixed capital formation (GFCF) is estimated at 15.2% while an increase in government final consumption expenditure (GFCE) is estimated at 4.4% in volume in the third quarter, compared with last year’s corresponding quarter.
A significant decrease is measured in both imports and exports of goods and services in the third quarter of 2020 compared with the same period last year. Exports fell by 38.8% while imports decreased by 26.3%. The deficit in the balance of trade in goods and services was 13.6 billion ISK during the period. In the first nine months of the year, GDP is estimated to have decreased by 8.1% compared with the first nine months of 2019.
Seasonally adjusted GDP increased by 2.6% in volume in the third quarter of 2020 compared with the second quarter of 2020.
| Quarterly national accounts, 3rd quarter of 2020 | ||||
| Current prices million ISK | Volume change on the same period of the previous year, % | Volume change from previous quarter, % | ||
| 3rd quarter | 3rd quarter | 1st - 3rd quarter | 3rd quarter | |
| Private final consumption | 377,656 | -2.3 | -3.5 | 8.2 |
| Government final consumption | 200,015 | 4.4 | 3.5 | 1.4 |
| Gross fixed capital formation | 148,819 | -15.2 | -11.4 | -0.9 |
| Changes in inventories | 17,181 | 0.9 | … | … |
| Gross domestic final expendit | 743,671 | -2.7 | -2.6 | 4.5 |
| Exports of goods and services | 244,493 | -38.8 | -32.5 | 3.6 |
| Imports of goods and services | -258,064 | -26.3 | -22.6 | 9.9 |
| Gross domestic product | 730,099 | -10.4 | -8.1 | 2.6 |
International comparison
When using the volume change in GDP compared with last year’s corresponding quarter, as has been the tradition in Iceland, the estimated decrease in GDP in the third quarter in Iceland is the largest among the European countries that have published their GDP estimates for the quarter. The second largest estimated decrease is in the UK, 9.6% compared with the third quarter of 2019. According to published estimates, GDP decreased by an average of 4.4% in the Eurozone in the third quarter compared with same period last year and a decrease was measured in all countries that have published preliminary results for the third quarter.
On the other hand, when seasonally adjusted quarterly GDP estimates are compared with the previous quarter, the GDP estimates in the Eurozone are estimated to have increased by 12.6% in volume on average, compared with 11.8% decrease in the second quarter. In comparison, Iceland’s GDP is estimated to have increased by 2.6% in volume between the second and third quarters of 2020, seasonally adjusted.
Source: Eurostat
Household final consumption expenditure decreased by 2.3% During the third quarter of 2020, household final consumption expenditure fell by 2.3% compared with the same period in 2019 but in the first nine months of 2020, HFCE has decreased by 3.5% in volume. An increase was measured in purchases of vehicles in the third quarter, compared with last year’s corresponding quarter, while a considerable decrease was measured in this component in the second quarter of 2020. A large part of the increase in household vehicles purchases can be attributed to increased imports and sales of electric cars which has been a growing trend this year. Direct purchases abroad by resident households decreased by close to 70% in volume during the period, which reflects the effects of the Covid-19 pandemic on travel worldwide and tougher border restrictions that took effect on the Icelandic border on August 19th.
Gross fixed capital formation decreased by 15.2%
Overall, gross fixed capital formation decreased by 15.2% in the third quarter of 2020 compared with the same period last year. Substantial growth was measured in central government investment during the quarter, which can partly be explained by an increase in road construction as well as by impact from the construction of the New Hospital (NLSH) during the quarter. However, there was a significant decrease measured in local government investment. According to Statistics Iceland’s data from the largest municipalities, their accumulated investment in the first nine months of 2020 is significantly lower than what the local governments’ plans provided for.
It should be noted that information on central government investment are generally more accurate than information on local government investment, which has historically proved to be subject to greater uncertainty than information on the scope and progression of central government investment projects. In total, government investment decreased by 6.7% in the third quarter compared with last year’s corresponding quarter.
Residential investment (GFCF in dwellings) decreased by 6.9% in the third quarter, considerably less than in the second quarter. According to data from Registers Iceland, the number of building permits issued has not been lower for at least a decade, but building permits are generally considered a good indication of the expected trend in residential investment. However, the increase in the number of completed constructions of residential real estate has not been greater between quarters since 2008. In the first nine months of 2020, residential investment has decreased by 10.7% in volume compared with the first nine months of 2019.
In general, a slowdown is measured in investment for most sectors and business sector investment is estimated to have decreased by 21.8% in the third quarter, compared with the same period last year. In the first nine months of 2020, business sector investment is estimated to have decreased by 9.9% in volume compared with the first nine months of 2019.
Negative balance of trade in goods and services
The total deficit in the balance of trade in goods and services was 13.6 billion ISK in Q3 2020, compared with a surplus of 60.4 billion ISK in the third quarter of 2019, at current exchange rates. Due to a greater decrease in exports than imports in the third quarter of 2020, external trade contributes negatively to GDP growth.
The deficit in the balance of trade in goods was 33.9 billion ISK in the third quarter of 2020, with total exports and imports of goods measured as 154 billion ISK and 188 billion ISK.
In the balance of trade in services, a surplus of 20.4 billion ISK was measured in the third quarter of 2020 with total exports and imports of services measured as 90.5 billion ISK and 70.1 billion ISK.
In the first nine months of 2020, the deficit in balance of trade in goods and services was 30.5 billion ISK but a surplus of 109.4 billion ISK in the same period in 2019. Increase in stock
In the third quarter of 2020 the total value of inventories increased by 17.2 billion ISK, at current prices, compared with the value in the second quarter. The largest increase was in the stock of marine products, but stocks of aluminium also increased during the period, while a decline was measured in the stock of ferrosilicon and other supplies.
GDP decreased by 8.1% in the first nine months of 2020
GDP in the first nine months of 2020 decreased by 8.1% in volume compared with the first nine months of 2019. In the same period, gross domestic final expenditure has decreased by 2.6% where HFCE decreased by 3.5% in volume, GFCE increased by 3.5% and GFCF decreased by 11.4%. Exports decreased by 32.5% and imports by 22.6% in the first nine months of 2020 compared with the same period of 2019.