8m/2018 goods account deficit ISK 111bn

The deficit on goods trade year-to-date is somewhat smaller than in the first eight months of 2017. Favourable developments in exported goods prices and a rise in marine product export volumes pull against increased oil and alumina prices and increased import volumes. The goods trade deficit for this year looks set to be similar to that in 2017. The surplus on services trade is likely to be quite a bit larger than the goods account deficit, resulting in a modest current account surplus.

According to newly published preliminary figures from Statistics Iceland (SI), the goods account surplus deficit totalled ISK 14.5bn in August, which is in line with the twelve-month average of ISK 13.8bn per month. Imports and exports of goods were broadly in line with the recent pattern. Goods exports generated ISK 50.9bn in revenues in August, while imports totalled ISK 65.4bn over the same period. 

Seafood export revenue on the rise

The goods account deficit year-to-date measures just under ISK 111bn, slightly less than over the same period in 2017 (ISK 114bn), although the effects of the Q1/2017 fishermen’s strike on marine product exports must be taken into account. Goods exports totalled ISK 388bn during this period, as opposed to ISK 330bn over the same period in 2017. 

Marine product export values were up by more than a fifth YoY at constant exchange rates in the January-August period. There are three reasons for this: Prices have risen in foreign fish markets, the fishermen’s strike affects 2017 figures, and the past year’s fishing quota represented an increase over the year before. In the first eight months of this year, marine product exports totalled over ISK 152bn, up from ISK 124bn over the same period in 2017. This is certainly a positive development, as it helps to mitigate the effects of a high real exchange rate on external trade.

Slower growth in consumer imports

Goods imports totalled ISK 499bn during the January-August period, an increase of ISK 53bn YoY in ISK terms. At constant exchange rates, the greatest differences are in increased fuel imports (owing mainly to rising global prices of oil and related products), increased imports of commodities and operational inputs (due largely to the rise in alumina prices), and increased imports of investment goods (apart from transport equipment). It is noteworthy, though, that transport equipment imports contracted during the period, while imports of consumer goods grew year-to-date by only 3.6% at constant exchange rates, far less than in 2017. This indicates that domestic demand is growing more slowly than in the recent past.

The outlook is for this year’s goods account deficit to be broadly the same as that in 2017. According to our preliminary forecast, goods trade will generate a deficit of ISK 180-190bn, as opposed to last year’s deficit of ISK 176bn. If this forecast materialises, the goods account deficit will total about 7% of GDP. The surplus on services trade will probably be quite a bit larger, however, and will be the major factor in pushing Iceland’s current account balance into positive territory.