These figures indicate that the turnaround in the economy, which Statistics Iceland's previous numbers implied, has not yet begun. The numbers show that the Icelandic economy will be slower to get back on its feet than the economies of neighbouring countries, since by comparison economic growth measured at 1% in the eurozone between the first and second quarters of this year, while in the US there was a growth of 0.4% in the same period. It should come as no surprise, however, that the economic recovery will take longer in Iceland, since the global banking crisis had considerably more dramatic consequences here than elsewhere. Nevertheless, one should bear in mind that these figures from Statistics Iceland are not final, since figures can often vary substantially from one review to the next. They therefore need to be interpreted with caution.  

Vast contraction in investment and private consumption
The vast contraction in GDP in the second quarter of this year can be attributed to, among other things, a marked contraction in private consumption between quarters. Thus private consumption contracted by 3.2% from the previous quarter, which is considerably more than the contraction that has been observed in recent quarters. This is the largest component in the GDP and therefore has a major impact. The contraction in private consumption therefore seems to be somewhat protracted and, despite everything, Icelanders have obviously not quite loosened their purse strings yet. Accordingly, domestic demand seems to have contracted as well. This is corroborated by import figures, since imports contracted by 5.1% from the previous quarter, which can be attributed to a 10.1% contraction in the imports of goods. Moreover, investments contracted by 4.7% from the previous quarter. Finally, inventories contracted by about ISK 10 bn. in the second quarter, mainly as a result of reduced seafood inventories. Exports in the second quarter increased by 2.8% from the previous quarter, mainly as a result of a 5.1% increase in service exports. Public consumption increased by 1% from the previous quarter, which is the first increase in public consumption in five quarters. In light of the planned increased stringency in fiscal policy, however, we are likely to see more contractions in this sector.

Turnaround not far off
Despite the fact that these figures from Statistics Iceland, if they prove to be correct, indicate that the bottom of the current recession has not yet been reached, one cannot ignore the fact that conditions are improving and a turnaround is clearly not far off. Real wages have started to increase after a protracted contraction, the króna has appreciated considerably this year, interest rates have fallen, and the situation on the labour market has improved. Moreover, the position of the exports sector has, in many ways, been very good. This should eventually lead to a turnaround in domestic demand and economic growth.


ISK continues to gain momentum

Collective redundancies were slightly less in August than they were in the same month last year when 50 people lost their jobs in similar circumstances, and this development is in line  with the general trend of this year. There have therefore been less collective redundancies so far this year than there were last year, since there have been 21 collective redundancies this year, representing 494 job losses, whereas in the same period last year, the Directorate of Labour was notified of 39 collective redundancies in which 1,367 employees lost their jobs. It is still impossible to say, however, that this wave of collective redundancies is over. There is also the risk that, for many firms, the delay in corporate debt restructuring may have staved off bankruptcy temporarily without any actual improvement in their financial position, which could mean that we will see an increase in the frequency of redundancies in the months ahead.


Drop in number of overnight stays at hotels

Since the beginning of the year, the number of overnight stays among Icelanders has dropped by 8.7%, while the number of overnight stays among foreigners has increased by 1.2%. It should be pointed out that, despite the fact that Icelanders have been cutting down on their spending on overnight stays in Icelandic hotels, the number of Icelanders travelling abroad has been steadily increasing. Since the beginning of the year, the number of Icelanders departing from the country has increased by 8.7% compared to the same period last year. This increase comes despite the volcanic eruption of Eyjafjallajökull, which had a considerable impact at the time and caused considerable disruptions to air traffic. One can therefore presume that the increase would have been even greater under normal circumstances. During the same period, the number of foreign tourists dropped by 2.4%, since, as is well known, the eruption also had a marked impact on the number of people flying to the country. Next week, the Tourist Board will be publishing its figures on the number of tourists flying out of Keflavik in August. It will be interesting to see whether they show an increase in the number of foreign tourists, as they did in July, and whether Icelanders continue to show their keenness to travel abroad.