In ISK terms, exports of manufactured goods were down sharply YoY in December, as is noted above. Given the shocks that have whiplashed the metals manufacturing sector recently – which we reported on late last year – the contraction should take no one by surprise. It is offset, however, by the past few months’ surge in the price of aluminium, which currently tops USD 3,000 per tonne, its highest since just after Russia’s full-scale invasion of Ukraine a scant four years ago. This eases the situation a bit, as repairing last autumn’s breakdown at the Grundartangi aluminium smelter is likely to take some time.

As the chart indicates, aluminium export values fluctuate widely between months, not least in response to month-on-month changes in ship arrivals. The abrupt year-end 2025 contraction in aluminium-generated export revenues is therefore due largely to monthly fluctuations, not only to underlying developments in export values.

Also on the bright side, marine product prices have developed rather favourably in recent quarters. This has offset the YoY decline in quotas for cod, Iceland’s most important species, and export values have therefore risen a bit despite lower export volumes.

Record motor vehicle imports at year-end 2025

In view of the recent upheaval in the economy, it is all the more interesting to examine current developments in goods imports. As is noted above[AB1] , imports contracted by 12% YoY in December, to ISK 115bn. This was due largely to a more than 50% YoY contraction in imports of investment goods apart from transport equipment. Such imports totalled just over ISK 22bn last month, down from almost ISK 50bn in December 2024. SI’s preliminary figures do not include a further breakdown of this item, but we assume that a key reason for the decline is that the tidal wave of computer equipment imports for the data centre sector is winding down. This surge in imports has had a profound effect on goods trade figures in recent quarters, but its impact on the foreign exchange market has been limited, as the computer equipment in question is financed entirely by the data centres’ foreign owners and customers.

 [AB1]ATH: I assume “sem fyrr” in the ISL should read “sem fyrr segir”. Correct me if I’m wrong …

Apart from investment goods, the main driver of the shift in imports was a YoY contraction of ISK 10bn in imports of commodities and operational inputs. Imports of food products shrank somewhat, whereas imports of other generic consumer goods increased at the same time.

One item, however, stands out starkly in December’s import data – transport equipment, or more specifically, passenger cars – as importation of ships and aircraft was negligible during the month. Car imports totalled just over ISK 22bn during the month, setting an all-time record. To put that figure into context, the value of passenger car imports averaged just under ISK 6bn per month in the first ten months of 2025. In November, the total surged to almost ISK 13bn, and in December it mushroomed to the aforementioned ISK 22bn.

This is doubtless due to the changes in public levies that took effect at the turn of the year. A recent press release from the umbrella organisation Bílgreinasambandið (BGS) explores developments in new motor vehicle registrations in this light, pointing out the possibility that some of the vehicles imported at the end of 2025 will not be registered until early this year. Even so, BGS notes the unusually large number of new personal vehicle registrations in the final months of the year and considers it likely that the surge is related to changes in excise taxes and electric car subsidies.

How is external trade developing?

Last year’s goods account deficit came to ISK 484bn, an all-time record in ISK terms and a YoY increase of ISK 59bn. To soften the blow, most of the YoY increase in the deficit is due to the surge in data centre-related imports, which have little impact on the foreign exchange market and will probably generate significantly increased export revenues in the sector from 2026 onwards.

In our opinion, developments in the goods account balance provide clear evidence of a cooling economy. In terms of a three-month moving average calculated at constant ISK exchange rates, which should give a clearer view of underlying developments in goods trade, there was a YoY contraction in goods imports and exports in the final months of 2025.

On the exports side, the nearly 5% contraction in Q4 is due mainly to the setback that occurred in metals manufacturing in H2/2025 with the breakdown at the Norðurál smelter and the production stoppage at PCC Bakki. By this measure, aluminium exports shrank by 6% in Q4 and ferrosilicon exports by over a fourth. Exports of other manufactured goods also dropped steeply. On the other hand, marine product exports gained steam.

A sharp contraction in imports of investment inputs played a leading role in the more than 11% decline in goods imports during the period, together with a 16% contraction in imports of commodities and operational inputs. Furthermore, growth in imports of generic consumer goods has slowed, with the salient exception of passenger cars, as is discussed above.

Summary:

• There are clear signs of a broad-based contraction in manufactured goods exports.
• This, together with slower development in the data centre industry and cautious investment plans among companies more generally, can be seen in a contraction in imports of commodities, operational inputs, and investment goods.
• Furthermore, slower population growth, higher unemployment, and bleaker household expectations about the economic outlook are likely to dampen demand for imported consumer goods.
• The race against time in the run-up to major changes in legislation explains the front-loading of car imports and will probably result in weaker car sales early this year.

As a consequence, the outlook is for imports and exports alike to keep contracting between years in the months ahead. Late last year, in the wake of the headwinds that buffeted the export sector, we developed a simple scenario of possible developments in 2026. We still consider this scenario quite likely, and we expect GDP growth to be sluggish in 2026, as it was in 2025.