After the Covid-19 pandemic triggered a historically sharp economic contraction in the second quarter of 2020, as GDP decreased by 10.5% in volume compared with the same period in 2019, the economy bounced back in the second quarter this year.

Gross Domestic Product (GDP) is estimated to have grown in volume by 7.3% in the second quarter of 2021 compared with the same period last year, mainly due to an increase in household consumption and gross fixed capital formation. In the first six months of 2021, GDP is estimated to have grown by 3.5% in volume compared with the same period of 2020. However, the contraction GDP has not been fully compensated as GDP in the second quarter of 2021 was still 4% lower in volume than it was in the second quarter of 2019, before the Covid-19 pandemic.

Contributions to growth by expenditure items in the second quarter
In the second quarter of 2021, gross domestic final expenditure (GDFE), the aggregate of household and government final consumption expenditure and gross fixed capital formation, increased by 9.4% in volume compared with the same period in 2020. Household final consumption expenditure (HFCE) increased by 8.5%, government final consumption expenditure (GFCE) increased by 2.6% and gross fixed capital formation (GFCF) by 25.9%.

A significant increase was measured in both imports and exports in the second quarter of 2021 compared with last year ‘s corresponding quarter, but since the increase in imports was greater than the increase in exports, the contribution from net trade to economic growth was negative during the quarter. Exports increased by 27.9% and imports by 32.8%. The deficit in the balance of trade in goods and services was 30.5 billion during the period.

Impact of the Covid-19 pandemic
The national accounts figures show that there are still both direct and indirect effects of the Covid-19 pandemic, including effects of domestic measures taken to counter its spread and the government’s vaccination plan in the first half of 2021. However, domestic restrictions were not fully lifted until the end of the reference period and the most significant changes in terms of border control came into force after its end.

Seasonally adjusted figures
Seasonally adjusted GDP increased by 4.2% in volume between the first quarter of 2021 and the second quarter of 2021. Compared to last year ‘s corresponding quarter, the seasonally adjusted GDP grew by 8.6% in the second quarter.

Quarterly national accounts, 2nd quarter of 2021
  Current prices million ISK Volume change on the same period of the previous year, % Volume change from previous quarter seasonally adjusted, % Volume change on the same period of the previous year seasonally adjusted, %
2nd quarter 2nd quarter 1st - 2nd quarter 2nd quarter 2nd quarter
Private final consumption 405,5888.54.7-0.88.5
Government final consumptio 228,0472.62.70.52.7
Gross fixed capital formation 201,19425.913.127.126.1
Changes in inventories -7,789-1.2
Gross domestic final expend 827,040 9.4 5.95.310.9
Exports of goods and service 287,149 27.9 1.67.525.8
Imports of goods and service -317,694 32.8 8.210.432.5
Gross domestic product 796,496 7.3 3.54.28.6

Working hours increased by 2.3%
According to measures of labour inputs, which generally give a strong indication about the production of goods and services for final use, total number of hours worked increased by 2.3% for the period as compared to the second quarter of 2020. However, total number of hours worked as measured are 9.6% fewer compared with the second quarter of 2019, which is a decrease of almost 7 million hours of work, quarterly.

International comparison
According to EU member states and the United States’ most recent publications on GDP, there seems to be an overall reversal in GDP development in the second quarter of 2021 compared with last year‘s corresponding quarter, largely due to last year‘s global historic economic contraction. An increase in GDP by 13.6% was measured within the Eurozone during the quarter, compared with a decrease by 14.4% in last year’s corresponding quarter. These results are preliminary, published by the national statistical institutes in recent weeks and are presented with standard disclaimers.

Household final consumption expenditure increased by 8.5%
During the second quarter of 2021, household final consumption expenditure increased by 8.5% compared with the same period in 2020. Direct purchases abroad by resident households increased by 54.1%, while it fell by 80% during the same period in 2020. Household vehicle purchases increased by 72% during the quarter, compared with a decrease of 35% during the same period in 2020. In the first six months of the year, household final consumption expenditure increased by 4.7% compared with the same period in 2020.

Government final consumption increased by 2.6%
Government final consumption expenditure is estimated to have increased by 2.6% in volume in the second quarter of 2021 compared with last year’s corresponding quarter. The increase during the period can largely be attributed to an increase in purchases of goods and services. In the first six months of the year, government final consumption expenditure is estimated to have increased by 2.7% in volume compared with the same period in 2020.

Gross fixed capital formation increased by 25.9%
Overall, gross fixed capital formation increased by 25.9% in volume in the second quarter of 2021 compared with last year’s corresponding quarter. Business sector investment increased by 41.9% during the period, but when excluding the effects of investments in ships, aircraft and heavy industries, business sector investment increased by 17.5% in the quarter. This effect can be explained by a significant increase in investment in ships and aircraft during this quarter – an increase amounting to almost 300%. Imports and exports of ships and aircraft are directly reflected in investment. This size often has a significant effect on gross fixed capital formation and external trade, while the effect on GDP is usually small or non-existent as the investment effect weigh out the effect on external trade. In the first six months of the year, business sector investment grew by 21.7% in volume compared to the first six months of 2020.

Business sector GFCF (selected items)
2020 2021
Volume changes from the corresponding periode year before, % Q1 Q2 Q3 Q4 Annual figures Q1 Q2
In heavy industry and related sectors-23.2-34.8-28.3-4.5-22.0-9.714.2
In ships, aircrafts and pertaining equipment2,647.4-11.6-64.3-73.9-19.2-67.1299.5
Without ships, aircrafts, heavy industry and related sectors-19.9-9.8-17.11.1-11.914.617.5

Residential investment (GFCF in dwellings) decreased by 2.9% in the second quarter of 2021. In the first six months of the year, residential investment decreased by 6.7% compared with the first six months of 2020. The increase in government investment was measured at 15.1% in the quarter compared with the same period in 2020 and in the first six months of 2021 the increase was 14.1% compared with the same period of last year.

Increased deficit in the balance of trade in goods and services
The total deficit in the balance of trade in goods and services was 30.5 billion ISK in the second quarter of 2021, compared with a deficit of 17.4 billion ISK in the same quarter of 2020, at current exchange rates. Due to a greater increase in imports than exports, external trade contributes negatively to GDP growth.

The deficit in balance of trade in goods was 55.7 billion ISK in the second quarter of 2021, with total exports and imports of goods measured as 183.3 billion ISK and 239.6 billion ISK during the period.

In the balance of trade in services, a surplus of 25.2 billion ISK was measured in the second quarter of 2021. During the period, exports and imports of services amounted to 103.3 billion ISK and 78.1 billion ISK.

In the first six months of 2021, the deficit in balance of trade in goods and services was 59 billion ISK, compared with a deficit of 19.8 billion ISK in the first six months of 2020, at current exchange rates.

Decrease in stock of inventories
In the second quarter of 2021, the total value of stock of inventories decreased by 7.8 billion ISK at current prices compared with the value in the first quarter of 2021. The largest decrease was in stock of marine products, while the stock of aluminium and oil increased slightly during the quarter.

Statistics