Goods account in the black at the year-end

After nearly two years of unremitting deficits, the balance on goods trade was positive in December, owing largely to robust exports. Both imports and exports contracted by about a tenth in 2020. The goods account deficit was smaller in 2020 than in 2019 but will probably remain sizeable in coming quarters.

According to newly published preliminary figures from Statistics Iceland (SI), the balance on goods was positive by about ISK 1bn in December. It was the first time since January 2019 that goods exports outweighed goods imports, and the previous surplus was strongly affected by WOW Air’s sale of two passenger jets to foreign borrowers.

Strong exports and modest imports

Goods exports totalled ISK 58.6bn in December, making it the third-strongest month of the year in terms of exported goods values. The positive result was driven largely by exports of marine products and industrial goods. Global aluminium prices have jumped in recent months, most likely contributing strongly to sizeable industrial export revenues. The rise in marine product export values, however, is probably due to increased export volume rather than higher prices. As the charts indicate, the final four months of 2020 stand out in terms of robust exports. This boost has improved the balance on goods considerably, even though imports also rose in ISK terms during the same period.

On the imports side, imports of fuels and transport equipment were relatively weak in December, whereas imports of commodities and operational goods were strong. When calculated at constant exchange rates, imports have generally been on the decline in recent months, and this, too, plays a part in the favourable goods account balance.

Goods account deficit shrank in 2020

In 2020, the deficit on goods trade totalled ISK 95bn, based on the preliminary figures for December. According to these numbers, the deficit was ISK 23bn smaller in 2020 than in 2019. In ISK terms, goods exports were down 3% year-on-year in 2020, while imports contracted 6%. On the other hand, it is well to remember that the ISK exchange rate was an average of 10% lower against major currencies last year than in 2019. As a result, last year’s contraction in both exports and imports was considerably larger in foreign currency terms.

SI recently published a breakdown of developments in goods exports and imports over the first 11 months of 2020. According to the figures, goods export volumes fell by nearly 10% relative to the same period in 2019, and goods import volumes by over 11%. Presumably, these numbers give a reasonably clear picture for the year as a whole.

Since the Corona Crisis struck, goods trade has developed broadly in line with our expectations. Unfavourable developments in exported goods prices made their mark during the period, but fortunately, things have changed for the better – particularly to include aluminium prices. Furthermore, the contraction in imports has been stronger than expected.

Deficit expected to continue

For 2021, the outlook is for a continued deficit on goods trade. It appears that there is little change on the horizon as regards marine product exports apart from aquaculture products. On the other hand, the export value of aluminium products could turn out considerably greater this year than in 2020, as prices have risen markedly and unutilised production capacity remains after the contraction in output in the recent term. On the other hand, increased investment is quick to affect import figures, and private consumption can be expected to rebound as well as the year advances, pushing consumer goods imports upwards.

The main uncertainty, however, is when – and how quickly – the tourism industry rights itself after the COVID pandemic. When it does, imports will rise overall, owing both to an increase in importation of inputs for the tourism sector itself and to the knock-on effect on domestic demand. Growth in net services revenues will carry the lion’s share of the weight in that equation, though. The current account balance appears to have been more or less flat in 2020, and doubtless it will remain that way while tourism remains in hibernation. When the sector awakens, however, the outlook is for a current account surplus to take hold once again, as it did for most of the 2010s.


Jón Bjarki Bentsson

Chief economist