Iceland’s CA deficit measured ISK 32.1 in Q1/2026, about half as much as in Q1/2025. The year-on-year improvement is due largely to a far smaller deficit on goods trade. The goods account deficit measured just over ISK 23bn in Q1, down from more than ISK 84bn in the same quarter of 2025. The surplus on services trade grew between years, from a scant ISK 18bn in Q1/2025 to over ISK 29bn in Q1/2026. This was offset by a deficit on primary income in the amount of almost ISK 21bn, as compared with a surplus of ISK 9bn in Q1 a year ago, and in the same vein, the deficit on net secondary income grew from just under ISK 13bn in Q1/2025 to over ISK 17bn in the same quarter of this year.
Modest current account deficit in the offing
A markedly smaller current account deficit in Q1/2026 reflects an improving trade balance, not least because of data centres. The outlook is for this trend to continue and for the CA deficit to be modest in the near term.
Developments in the data centre sector play a starring role in the YoY turnaround in the trade balance. In total, the surplus on trade in goods and services measured nearly ISK 6bn in Q1/2026, as opposed to a deficit of ISK 66bn a year earlier. According to a recent press release from Statistics Iceland (SI), increased export revenues from data centres accounted for the bulk of the ISK 13.5bn YoY growth in exports from the information and communications technology (ICT) sector. This equates to a growth rate of 66% during the period. By the same token, last year’s fat goods account deficit was due partly to massive imports of computer equipment for the data centres.
Growing deficit on secondary income
As is noted above, this year’s Q1 deficit on secondary income measured ISK 17bn, an increase of over ISK 4bn between years. This deficit has been growing steadily in the past decade; for instance, net secondary income was negative in the amount of just under ISK 3bn in Q1/2026.
As the chart shows, the biggest difference is the surge in monetary remittances sent to other countries by individuals in Iceland. This, of course, stems from the rapidly growing share of immigrants in Iceland, many of whom send a portion of their employment income to relatives in their home country. It should be noted, though, 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.
Furthermore, the aluminium smelters’ improving operating performance shows in various ways in current account components. The currently high price of aluminium is reflected in rising export revenues. On the other hand, all of the smelters are foreign-owned, and a positive operating performance is entered on the expenditures side in the balance on primary income, as is the case with other financial income earned by non-residents on their investments and obligations in Iceland. The data centres’ operations fall more or less into the same category, as they, too, are mostly foreign-owned. In both of these sectors, a portion of export revenues remains in Iceland; i.e., that used for energy purchases, wage payments, purchases of goods and services from resident entities, and tax payments.
The current account balance is firming up
Yesterday we published our new macroeconomic forecast for 2026-2028. According to that forecast, the sizeable current account deficits in 2024 and 2025 look set to give way to a better balance in the coming term. Export growth measured 1% in 2025 and will probably be slightly stronger in 2026. This year’s growth will stem almost entirely from services exports, especially intellectual property-related services.
Growth will gain further momentum in coming years, with moderate gains in exports of both goods and services. The resolution of the manufacturing problems in the aluminium industry, increased fishing quotas (not least for capelin), and overall growth in intellectual property, land-based aquaculture, and tourism will all make their mark.
After a surge in 2025, the outlook is for imports to contract by 0.6% in 2026, particularly because of reduced importation of computer equipment for data centres. Imports of rental cars and miscellaneous equipment look set to ease as well. In the years ahead, imports will regain momentum as economic activity accelerates. The contribution of net trade to output growth will probably be positive in 2026 and 2027 and then turn negative in the final year of the forecast horizon.
In addition to the aforementioned developments in exports and imports, terms of trade have improved, buoyed by high marine product and aluminium prices despite the surge in the price of oil and various imported inputs.
We project the current account deficit at just under 2% of GDP this year and about 1.5% of GDP per year in 2027 and 2028. This situation can be called sustainable in the sense that, all else being equal, a deficit exceeded by output growth will not cause the ratio of net external liabilities to GDP to rise. Nonetheless, a balanced current account is preferable in the long run. The high real exchange rate is an impediment, though, and in the end, the ISK will probably have to weaken in order for this balance to be achieved.
