As we have discussed recently, it had already been established that the balance on combined goods and services trade yielded a deficit of ISK 88bn. We also pointed out that investment in the data centre sector has been the main driver of the fat goods account deficit, but that data centre operations have already begun to account for an increased share of revenues from services exports. Newly published figures from the Central Bank (CBI) include the contribution from primary and secondary income as well. The primary income deficit came to nearly ISK 18bn during the quarter, and the deficit on secondary income was just under ISK 15bn. All subcomponents of the current account apart from services trade generated considerable deficits in Q2.

As far as factor income is concerned, the deficit in 2026 to date is due almost entirely to foreign investors’ financial income from inward foreign direct investment (FDI), which exceeds Icelandic investors’ income from outward FDI. A good example of this is Iceland’s foreign-owned aluminium smelters, which have benefited from high aluminium prices in the recent past. In the same vein, it can be assumed that the figures are already showing the effects of growing activity among data centres, which are foreign-owned to a significant degree. Offsetting these numbers, of course, are export revenues from either aluminium exports or data centre-related services.

We have pointed out previously that a large chunk of the recent current account deficit has stemmed from the surge in investment in data centres and other information-related activities. These development projects require substantial importation of equipment, thereby increasing the goods account deficit in the short run. On the other hand, the investments in question are financed mainly by foreign entities, and they will generate export revenues in the future. The deficit figures therefore paint a much bleaker picture of Iceland’s underlying trade situation than either the FX market or the net international investment position (NIIP) would indicate.

Impressive NIIP

The fact is that Iceland’s NIIP is quite robust; in fact, it has never been better than it is right now. According to figures from the CBI, the NIIP was positive by ISK 2,408bn, or almost 47% of GDP, in mid-2026. Only once before has it been this strong as a share of GDP: in 2025, exactly a year earlier. Until the mid-2010s, the NIIP had been consistently negative ever since reliable data became available. In other words, Iceland was a debtor nation for that entire time. In this sense, though, Iceland is now a creditor to the tune of nearly half of GDP.

As the chart shows, this positive position is due largely to the pension system’s enormous foreign assets and the CBI’s abundant international reserves. On the other hand, inward foreign direct investment (FDI) exceeds outward FDI by a sizeable margin, and interest-bearing debt exceeds corresponding assets. It should be noted, though, that the bulk of that debt is in foreign currency and does not bear Icelandic interest.

Although developments in the current account balance should always be monitored, and the persistent deficits of the past several years should not be treated lightly, there is a world of difference between the conditions underlying the present deficit and those prevailing during the prelude to the financial crisis.

Back then, the deficit largely reflected substantial net external debt accumulation accompanied by enormous inflows of volatile foreign capital, which pushed the ISK exchange rate abnormally high. Foreign borrowings by financial institutions, other companies, and households grew apace, domestic demand was very strong, and Iceland’s net external debt grew by dozens of percentage points of GDP. The CA deficit was therefore a manifestation of the Icelandic economy’s over-reliance on its perceived creditworthiness.

Today the situation is fundamentally different. Iceland has a large positive NIIP, and foreign assets far exceed foreign liabilities. The majority of those assets are held by the pension funds and other long-term investors. At the same time, a large share of the deficit is linked to investments that are financed by foreign entities and are intended to create future export revenues rather than support short-term bursts in consumption.

This is not to say that the CA deficit doesn’t matter. A protracted structural current account deficit can eventually erode a strong NIIP, as the deficit must ultimately be financed with foreign borrowings or asset sales. That said, current conditions are far more favourable than those prevailing at the time of the peak deficits characterising the pre-crisis period, when Iceland had a fat CA deficit, rapidly growing external debt, and a worsening external position. This time around, the fat CA deficit is accompanied by an improving external position. That alone says a great deal about how different the economy is today.

The outlook is for the current account to improve in the coming term. In our macroeconomic forecast from early June, we projected that the deficit would measure just under 2% of GDP this year and then hover around 1.5% of GDP in the two years to follow. It now seems obvious that the 2026 deficit will be considerably larger than we projected, not least because the scale of data centre investment is far larger than we had anticipated. But in our estimation, the big picture is unchanged. The CA deficit looks set to shrink markedly in the years ahead, and there is good reason to expect the NIIP to remain solid.