National accounts result for 2022 indicate gross domestic production (GDP) to have increased by 6.4% in volume with nominal level estimated at 3,766 billion ISK. Considering population growth, GDP per capita is estimated to have increased by 3,7% in volume between 2021 and 2022. GDP is estimated to have increased by 3.1% in volume in the fourth quarter of 2022 compared with the same period the year before. Seasonally adjusted, GDP volume increased by 2.2% in the fourth quarter of 2022 compared with the third quarter of the same year.
National Accounts figures for 2022
Statistics Iceland now publishes its preliminary estimates of the national accounts for the year 2022. The real increase in private consumption by 8.6% year-over-year is the main driver of economic growth last year, but capital formation and exports also have positive contributions. Gross domestic final expenditure (GDFE), the aggregate of household and government final consumption expenditure and gross fixed capital formation, is estimated to have increased by 6.4% in volume last year compared with 6.3% between 2020 and 2021. The contribution of external trade to economic growth remains negative as increases in imports continue to surpass export growth.
Transition in external trade
Extended strong growth is measured in export in the fourth quarter of 2022 which is largely explained by service export. Imports have also grown rapidly, both considering the last quarter and the whole year. External trade has negatively contributed to GDP growth in the past few years, a trend which continued in 2022. The total value of goods and services exports in the fourth quarter of 2022 is estimated 437.5 billion ISK compared with 351.9 billion ISK the previous year. At the same time, the estimated value of imports of goods and services is 499,2 billion ISK compared with 384.1 billion ISK the previous year.
The balance of goods and services is therefore estimated to be negative by 61.7 billion ISK during the fourth quarter of 2022 which corresponds to a 6.4% deficit of GDP of the quarter. For the same period in 2021, a deficit of 32.2 billion ISK (-2.1% of GDP) was recorded. The balance of goods and services was negative by 27.5 billion ISK for the whole year compared with 66.3 billion ISK deficit the previous year. This development in foreign trade is in line with the trend of negative balance in trade since 2020 after eleven years of trade surplus since 2009.
Trade in intellectual property products not included in external trade
Trade in the use of intellectual property in external trade in services has been significant in recent years, but now questions have been raised as to whether these transactions meet the criteria of national accounts and foreign trade for inclusion in trade transactions. As the matter is still under review within Statistics Iceland, it has been decided not to include these transactions in the external trade figures for the time being. The decision is retroactive, and affects the measurement of trade balance since 2018 until further notice. The effect on quarterly trade balances is either positive or negative. For the period 2018-2022, the impact is negative by roughly 90 billion ISK.
Household consumption persistent
Household final consumption expenditure increased by 4.7% in the fourth quarter in real terms from same period previous year, and for the year as a whole the estimated growth is 8.6% compared with 7.0% growth the year before. The components of private consumption showing the most growth are related to transportation and purchase of vehicles, in addition to hiking private consumption expenditures due to travels abroad. The outcome is supported by growing consumer purchasing power with a total wage income increase of more than 15%, compared with around 6% increase in the consumer price index less housing, the increased purchasing power and the increase in the volume of private consumption seem well aligned.
Government consumption expenditure increased by 1.6% in the fourth quarter
During the Covid-19 pandemic, public consumption expenditure increased substantially, peaking in 2020 when the share of public consumption in GDP reached nearly 28%. Since then, the ratio has decreased by 2 percentage points. The volume increase of public consumption last year was measured at 1.6%, which is the same real change as between quarters. Public sector finances will be discussed in more detail in a news release by Statistics Iceland on 16 March 2023.
Investment increases
Gross fixed capital formation is estimated to have increased by 6.9% in volume in 2022 compared with 2021. Looking at the fourth quarter, the increase in volume amounted to 4.4% from the same period in the previous year. The share of capital formation in GDP remains high in a historical perspective at 24.6% and hasn’t been this high since before the financial crisis in 2008-2009. Business sector investment has been strong over the last two years after steady decline in the previous years. The volume change last year was 15.2% which was the result of fairly equal contributions of various industries.
It is estimated that residential investment (GFCF in dwellings) amounted to 184 billion ISK at current prices in 2022 corresponding to a 6.3% decrease in volume compared with 2021. Recent quarterly data shows a sustained decline in residential capital formation since 2021, after a considerable increase in the previous years. Looking over a longer period, however, the extent of capital formation in residential property is still high in a historical perspective.
According to data from the Icelandic Housing and Construction Authority (HMS), the number of completed residential real estate (at the final construction stage) in Iceland increased by almost 3,171 in 2022. Public sector investment declined in volume terms by 0.9% last year compared with the previous year.
Lease agreements in national accounts and external trade - revision
The treatment of aircraft lease agreements in national accounts and external trade has been under review at Statistic Iceland for some time after changes were made in the treatment of these lease agreements in the publication of national accounts in August 2021. Advice was sought from the European statistical office, Eurostat, regarding methodological issues. It was Eurostat's conclusion that the distinction between financial and operational leases should take into consideration a so-called cost ratio which is determined by the market value of the asset and the accumulated rental payments over the rental period. In cases where this ratio is relatively low, an operational lease was suggested, while a high ratio would suggest a financial lease. In light of this, the treatment of lease agreements in transportation has been reset to what it was before the changes made in August 2021. The change in treatment of the lease agreements, for the period 2018-2022, has the effect that imports of goods and capital formation decreases, but imports of services increases.
Decrease in stock
According to inventory reports, the total value of inventories decreased by 7.9 billion ISK at current prices during the fourth quarter. The largest decrease was in the stock of marine products and aluminium, while increases where measured in the stock of oil, ferrosilicon and other consumables.
Increase in hours worked 6.9% and number of employed persons increase by 7.5%
It is estimated that the total number of hours worked increased by 6.9% in 2022 compared with 2021 but the number of employed persons increased by 7.5% during the same period. The increase in hours worked last year is greater during the first half of the year, around 9%, compared with roughly 5% increase during the second half. A similar pattern applies to increase in number of employed persons.
Revised figures
The general rule for the revision of national accounts is that when the annual figures are published, in February and August, the results of the previous three years are open for a revision, but due to revisions of lease agreements, the fourth year was additionally taken into consideration in this publication.
In parallel with the publication of first estimates for 2022, figures for the last four years have been revised on the basis of more detailed information, including on investment. The biggest impact of the revision is on GDP in 2019, according to which GDP increased by 1.8 % in volume, compared with a 2.4 % increase according to previously published figures.