Last updated: September 11, 2026
Iceland’s economic momentum has experienced notable volatility, moving from a contraction of -1.71% year-on-year in Q4 2024 to a peak growth rate of 3.68% in Q1 2026, before cooling to 0.3% in Q2 2026. The output gap sits at -4.37% of potential GDP in 2026 (shifting slightly to -4.42 in 2027), indicating that the economy currently possesses spare capacity and is operating below its potential after moving out of an overheated phase in previous years. Concurrently, the unemployment rate held in a steady band between 5.4% in December 2025 and a latest reading of 5.8% in July 2026.
Price pressures have remained a persistent challenge, with CPI inflation hovering between 4.49% in December 2025 and 5.18% in June 2026, touching a high of 5.4% in March 2026. In response to these elevated price pressures, the Central Bank of Iceland has progressively tightened monetary policy, raising its policy rate from 7.25% in January and February 2026 to a peak of 8.0% by August 2026.
Public finances reflect ongoing fiscal deficits as government expenditures consistently outpace revenues. Over the eight quarters spanning Q1 2024 to Q4 2025, government revenue ranged from 475.7 billions of national currency to a high of 552.26 billions of national currency in Q4 2025. Over the same timeframe, government expenditure moved between 482.62 billions of national currency and 605.22 billions of national currency in Q4 2025. No official government debt, budget balance, or total financial liability data is available for Iceland.
No sector balance data is available for Iceland.
In foreign trade, the country consistently runs a goods trade deficit, as imports from the world have outpaced exports to the world across the 2020-2025 period. Goods exports to the world grew from 4,522.5 millions of national currency in 2020 to 7,187.52 millions of national currency in 2025, while goods imports from the world expanded from 4,267.49 millions of national currency in 2020 to 10,958.24 millions of national currency in 2025.
Energy and input cost vulnerabilities present a mixed picture. Net electricity imports stood at 0.0 billion kWh annually from 2017 to 2024, and dry natural gas imports similarly registered at 0.0 billion cubic feet annually over the same period, rendering both metrics immaterial to the scale of this economy. Meanwhile, global input costs have experienced sharp fluctuations, with the Brent crude oil price moving from $61.81 per barrel in December 2025 to a peak of $103.84 per barrel in May 2026 before easing to $83.73 per barrel in July 2026.
No currency value data against the IMF Special Drawing Right (SDR) basket is available for Iceland.
Overall, Iceland's economy is operating below its potential with notable spare capacity while wrestling with persistent inflation that has driven the Central Bank of Iceland to lift its policy rate to 8.0%. Trade deficits continue to widen as goods imports outpace export growth against a backdrop of volatile global energy input costs.
This bulletin is generated with AI assistance from the structured economic data collected across this site (national accounts, sector accounts, trade, energy and currency data). It is intended as an accessible summary, not investment advice — figures may be revised as underlying data sources are updated. For the detailed underlying series, see the Nation Account Data and Economic Data sections in the menu above.