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Icelandic Financial Market Digest 10. apríl

Publisher: Íslandsbanki Research • Resp.Editor: Ingólfur Bender

Goods account deficit much smaller in 2018 to date

Thus far in 2018, the deficit on goods trade is about a third smaller than it was for the same period a year ago. The difference is due largely to a strong increase in marine product exports in Q1, whereas the fishermen’s strike early last year put a damper on Q1/2017 exports. For 2018 as a whole, the outlook is for the deficit on goods trade to be about the same as last year’s, but as was the case in 2017, a sizeable surplus on services trade will generate an overall current account surplus.

Statistics affected by fishermen’s strike 

According to newly released preliminary figures from Statistics Iceland (SI), the balance on goods was negative by ISK 8.2bn in March, slightly over half the deficit of ISK 15.9bn recorded in March 2017. Goods exports totalled ISK 48.9bn in March, an increase of nearly ISK 9.2bn year-on-year, whereas imports totalled ISK 57.1bn, after increasing by just under ISK 1.5bn YoY. The surge in exports in March is due largely to ISK 6.5bn in exports of other goods, presumably the sale of large equipment items such as ships or aircraft. Marine product exports rose by ISK 2.3bn YoY. The comparison between years is affected strongly by the fishermen’s strike, which had just ended by this time in 2017.

The Q1/2018 goods account deficit totalled ISK 24.9bn, some ISK 12.4bn less than in the same quarter a year ago. The above-mentioned fishermen’s strike, which lasted from late December 2016 until late February 2017, is the main reason the deficit has contracted between years. Marine product exports grew by nearly half YoY, to ISK 54.6bn in Q1/2018. The value of exported manufacturing goods rose by nearly ISK 10bn, measured at each year’s respective exchange rate. On average, the exchange rate of the ISK was broadly unchanged between the two periods. Aluminium prices, on the other hand, were approximately a fifth higher in Q1/2018 than in the same quarter of 2017. This could explain the uptick in export values to a large extent. In all, exports totalled just over ISK 143bn during the period, increasing by nearly a third YoY in ISK terms. 

Goods imports in Q1 totalled ISK 168bn, a YoY increase of just over 15% in ISK terms. The increase was spread more or less evenly across all key import categories, except that petrol imports were unusually strong in January 2018.

Outlook for continued current account surplus

Although 2018 has begun quite a bit better than 2017 did as far as goods trade is concerned, the difference between the two years is due almost entirely to irregular factors such as last year’s strike and this year’s strong exports of large transport equipment. The outlook is for a sizeable deficit on goods trade this year, as was the case in 2017. Goods imports will probably increase, in line with increased private consumption and growing investment in infrastructure and residential real estate. The outlook does not indicate a rapid rise in goods exports, however. The main sources of growth there are increased fish exports stemming from expanded demersal fishing quotas and exports of products from the PCC silicon plant, which will begin operation this month. 

In our macroeconomic forecast, issued in January, we projected a goods account deficit in 2018 of about ISK 180bn, about the same as in 2017. On the other hand, services trade is expected to generate a handsome surplus this year, as it did last year. We project the current account surplus at just under ISK 100bn this year, which corresponds to approximately 3.5% of GDP, according to our forecast. 


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