Increased goods account deficit in 2025

Statistics Iceland (SI) had previously published figures on goods and services trade for the year. According to those figures, the goods account showed a deficit of ISK 385bn, and the services account was positive by ISK 273bn. The deficit on goods increased by ISK 62bn year-on-year, while the services account surplus grew by ISK 8bn at the same time. The balance on combined goods and services trade was therefore negative by ISK 112bn in 2025, an increase of ISK 54bn between years. This is mitigated, though, by the fact that the lion’s share of growth in the deficit on goods – and therefore in the trade deficit as a whole – stems from the surge in imports of computer equipment for data centres. The main purpose of those imports, of course, is to create export revenues from data centre services, and furthermore, the imports are financed directly by foreign entities. Thus the resulting deficit has not created downward pressures on the ISK exchange rate, as might be expected from a quick glance at the numbers above.

Intellectual property sector gaining momentum

Actually, increased activity in the data centre sector can already be seen in growing services exports. For instance, SI notes that export revenues from telecommunications, computer, and information services were nearly twice as much in Q4/2025 as they were a year earlier, owing primarily to growth in data centre operations. It should be noted that total export revenues from the aforementioned activities amounted to ISK 110bn in 2025 as a whole, an increase of 50% YoY.

Data centres are one of the many different export sectors classified as intellectual property, which has become more prominent in generating export revenues in recent years. In 2025 intellectual property created ISK 292bn in export revenues, or 15% of total export revenues for the year, only marginally below revenues from exports of marine products (ISK 359bn/18%) and aluminium (ISK 318bn/16%). Tourism was the runaway leader in export revenue generation, though, with ISK 629bn, or 32% of the total for the year. It is worth noting that domestic value added as a share of total revenues varies by sector. For instance, it is considerably less in the case of aluminium than in the other key sectors, as imported inputs account for a large share of the cost of producing aluminium, and the smelters are entirely foreign-owned.

Balance on income showed small deficit in 2025 …

The primary income balance is the part of the CBI’s balance of payments accounting that covers cross-border payments due to labour contributions or to revenues and expenses on capital (such as interest and dividends). In Q4, there was a marginal surplus on primary income, but for the year as a whole the balance on income was negative by ISK 11bn. The balance on income has often been quite volatile, particularly as regards returns generated by Iceland’s three foreign-owned aluminium smelters. The owners benefit more from high aluminium prices than domestic entities do, but they must also absorb most of the shock when prices are low.

… but the deficit on net secondary income is growing

There is a bigger difference between revenues and expenditures in the fourth key subcomponent of the CA balance. Net secondary income includes cross-border payments such as contributions to international cooperation and monetary remittances sent between friends and family members. As the chart shows, individuals’ remittances from Iceland to foreign countries have grown substantially in the past decade or so, reaching ISK 59bn in 2025. In nominal terms, this is about eight times the total of ISK 7.3bn from a decade earlier.

The remittances in question primarily represent the share of employment income that foreign nationals earn in Iceland but send to family members in their home country, and they have grown by leaps and bounds in tandem with growth in Iceland’s immigrant population. As in the case of the aluminium smelters, however, it should be noted that a large share of the domestic value added by foreign nationals’ labour contribution remains in Iceland in the form of consumption spending, profits in the sectors that employ foreign workers, and tax revenues.

Hefty CA deficit in 2025, but the outlook is reasonably good

In all, the 2025 CA deficit equalled ISK 178bn, or 3.6% of GDP for the year. In comparison, the 2024 deficit was ISK 149bn, or 3.2% of GDP, making last year’s deficit Iceland’s largest relative to GDP since the financial crisis in 2008, if we ignore the calculated interest payments from the failed banks’ estates in 2009-2015, which were never remitted. There is more going on than meets the eye, however. As is noted above, the 2025 deficit was strongly affected by enormous investments in the data centre sector. If those investments are set aside for the reasons outlined above, the CA balance is far more favourable, and better in line with the exchange rate stability that prevailed during the year.

In our macroeconomic forecast from January, we projected that the CA deficit would measure 3.5% of GDP in 2025, and the figures from the CBI are well in line with that estimate. In the forecast, we also sketched out probable developments in 2026 through 2028, with the projected CA deficit equalling right around 1% of GDP in each year of the horizon. Such a deficit is acceptable in an economy that is probably set to grow faster than this, particularly in view of the relatively high investment level. At the same time, national saving is robust, and the CA deficit therefore does not derive from an excessively low saving level.

The external balance of the economy is reasonably good, and most indicators imply that it will remain so for a while, although we are unlikely to see CA surpluses like those from the latter half of the 2010s in the near future.