According to preliminary estimates, real gross domestic product (GDP) increased by 2.6% in the first quarter of 2025, compared with the same quarter of the previous year. The main driver of growth was gross fixed capital formation, which rose by 18%, while household final consumption grew by 2.3% and government final consumption by 2.6%.
Taking into account changes in inventories, real gross domestic final expenditure is estimated to have increased by 6.3%. There was a widening trade deficit in goods and services compared with the same period last year, resulting in a negative contribution from net exports to real GDP growth of 2.1%.
On a seasonally adjusted basis, real GDP is estimated to have grown by 2.7% in the first quarter of 2025 compared with the fourth quarter of 2024.
It should be noted that this release is accompanied by a comprehensive benchmark revision of national accounts time series for the years 1995–2024. Further information can be found in an explanatory note below.
Gross fixed capital formation weighs heavily in economic growth
Real capital formation increased by 18.0% compared with the first quarter of 2024. Of this, residential investment is estimated to have increased by 22.4% compared with the same quarter in 2024. Business investment is at the same time estimated to have increased by 19.6%, largely due to a significant rise in the import of various types of computer equipment for data centers.
A small real increase of 2.8% is estimated in public capital formation. However, there is still considerable uncertainty regarding these figures. It is worth mentioning that a new research vessel for the Marine and Freshwater Research Institute counts as an investment of just under ISK 5 billion during the quarter.
Private consumption increased by 2.3%
Real private consumption increased by 2.3% from the same period last year. Overall, domestic household private consumption saw a modest increase. After several quarters of decline, the consumption of durable goods, such as car purchases, has begun to recover. Growth in household purchases of semi-durable consumer goods is gradual. Additionally, private consumption related to Icelanders’ travel abroad has increased, alongside a modest uptick in housing expenditures.
Government final consumption increased by 2.6%
The volume change in government final consumption (GFCE) is estimated at 2.6% in the first quarter of 2025 compared with the same period in 2024. Government finance statistics will be published on 12 June.
Widening trade deficit
The trade balance in goods and services is estimated to have been negative by 65.5 billion ISK in the first quarter, representing a significantly larger deficit than in the same quarter of the previous year, when the deficit amounted to just over 36 billion ISK. As a result, the increased trade deficit had a negative contribution of 2.1% to real GDP growth in the first quarter.
Inventory changes revised for 2024
During the comprehensive revision of the national accounts time series published alongside the release of first-quarter GDP figures, errors were discovered in the source data underlying the calculation of inventory changes. This errors had a significant downward impact on GDP estimates for the third and fourth quarters of 2024.
In the first quarter, the total value of inventories increased by 4.46 billion ISK at current prices compared to the previous quarter. All subcomponents were positive except for oil, which contributed negatively by 575 million ISK. Inventories of aluminium products, and silicon metal increased by 2.57 billion ISK. Inventory changes in the fisheries sector were also positive, amounting to 2.47 billion ISK.
The contribution of inventory changes to real GDP growth in the first quarter is estimated to have been 0.1% compared with the first quarter of 2024.
The amount of work hours increased by 2.9% year-on-year
It is estimated that the total number of hours worked increased by 2.9% in the first quarter of 2025 compared with the same period in 2024, while the number of employed persons has only increased by 0.6%.
Seasonally adjusted GDP increased by 2.7%
Seasonally adjusted GDP increased in volume by 2.7% in the first quarter of 2025 compared with the previous quarter, the fourth quarter of 2024. When seasonally adjusted, household consumption expenditure increased by 1.3%, government final consumption by 0.7%, and gross fixed capital formation by 0.3%. During the same period, seasonally adjusted exports increased by 3.4% and imports by 1.3%.
Benchmark revision of national accounts 1995-2024
In parallel with the publication of national accounts data for the first quarter of 2025, Statistics Iceland is releasing the results of a comprehensive benchmark revision of national accounts time series. This revision follows the agreed policy and guidelines set by Eurostat regarding regular benchmark revisions and their coordinated implementation across countries. These revisions are carried out at least every five years, with the aim of incorporating improved methodologies, enhanced data sources, and alignment with international statistical standards. They also enable Statistics Iceland to integrate new data and methodological changes to ensure the continued quality and relevance of the national accounts.
The attached report provides a detailed overview of the key changes introduced and their impact on gross domestic product (GDP). The current revision has the greatest effect on figures published after 2011, although some time series have been revised as far back as 1995. The revision results in both upward and downward adjustments to the volume growth of GDP, varying by year.
Alongside the update of the time series, the reference year for constant price calculations has also been revised. Figures are now presented at 2020 constant prices, replacing the previous base year of 2015 which had been in use since 2020.
Benchmark revision of national accounts 1995-2024– Statistical Series