Revenues rise more than expenditures
Total public revenues are estimated at ISK 162 bn for the second quarter, up 10.2% YoY. The rise is due to ISK 6.6 bn in increased payroll tax revenues and ISK 5.7 bn in increased income tax revenues. At the same time, total public expenditure amounted to ISK 193 bn, an increase of 2.3% year-on-year. The rise in expenditures is due primarily to a surge in interest expense of ISK 8.6 bn YoY, as well as to a hefty rise in public purchases of goods and services (up ISK 3.7 bn). Offsetting these expenditure increases is a reduction of ISK 3.7 bn due to social transfers to households and a decline in investment expense amounting to ISK 4.4 bn.

Treasury debt over 100% of GDP
At the end of Q2/2010, the Treasury's debt amounted to ISK 1,636 bn, up from ISK 1,403 bn at the same time a year ago. Clearly, debts have risen sharply, from 93.5% of GDP to 105.8% of GDP. Because of this marked increase in fiscal debt, the Treasury's net monetary assets - that is, assets in excess of liabilities - were negative by ISK 546 bn at the end of Q2/2010, whereas they had been negative by ISK 412 bn at the same time in 2009.

Even though the real estate market appears to be headed for slightly better times, no true turnaround in residential investment is foreseeable. For example, residential investment contracted by nearly 45% year-on-year in Q2/2010. This is no real surprise, though, in view of how many new or nearly finished flats are still on the market, the results of the enormous investment boom taking place during the pre-crisis years. 


The week's statistics

Tomorrow, Statistics Iceland (SI) will publish preliminary figures on external goods trade for the month of August. In July, goods exports totalled ISK 44.0 bn, while imports were valued at ISK 39,3 bn., making July's surplus about ISK 4.6 bn, somewhat smaller than in recent months but still substantially larger than in July 2009. The total goods account surplus for the first seven months of the year amounts to ISK 68.5 bn, as opposed to ISK 41.3 bn during the same period last year. The goods trade balance is therefore ISK 27.2 bn more positive this year than at the same time a year ago.

Tourism figures for August
The Icelandic Tourist Board plans to publish figures on tourist departures in August via Leifur Eiríksson International Airport either today or tomorrow. In July, the number of foreign tourists in Iceland rose 1.5% year-on-year. Since the beginning of 2010, however, tourists are down by 2.4%, largely due to the Eyjafjallajökull volcanic eruption. The resulting delays in air travel have not prevented a surge in Icelanders travelling abroad this year, however; statistics show a year-on-year increase of 8.7%, which would probably have been much larger under normal circumstances. 23% more Icelanders travelled abroad in July 2010 than in July 2009. It will be interesting to determine from Icelandic Tourist Board figures whether the number of foreign tourists increased year-on-year in August, as in July, and whether Icelanders are continuing to satisfy their wanderlust as they have in past years.

Wage developments in Q2
On Wednesday, SI will publish figures on wage developments in the second quarter of 2010. In Q1, regular wages were 1% higher on average than in the preceding quarter. Wages in the private sector rose by 1.3% quarter-on-quarter, while public sector wages rose by 0.3%. These wage rises are negligible in historical terms, however, as the labour market has been hit hard by the banking crisis. The year-on-year wage increase in Q1 was larger in the private sector (4.4%) than in the public sector (1.4%).

Indicators of developments in private consumption in Q3
On Friday, the Central Bank will publish figures on payment card turnover in August. It will be most interesting to see those numbers, as they give a strong indication of developments in private consumption during the third quarter. Private consumption contracted by about 3.2% quarter-on-quarter in Q2/2010, which indicates that Icelandic households are still exercising restraint in financial matters and keeping spending at a minimum. Payment card figures from July indicate that that turnover is picking up again, as credit card turnover rose by 2.8% year-on-year in real terms during the month. Icelanders' credit card use abroad rose by 37% YoY in real terms during July, showing clearly that they have begun to spend again while abroad, even though they are keeping their belts tight at home. It will be interesting to keep tabs on foreign payment card turnover in Iceland in August, at the height of the tourist season.

Real exchange rate remains low in spite of ISK appreciation
Later today, the Central Bank will publish the real exchange rate of the Icelandic króna (ISK) in August. In July the real exchange rate fell 0.2% month-on-month in terms of relative consumer prices, the first MoM decline since November 2009. This drop is due to a 0.7% drop in domestic price levels between June and July, a somewhat greater decline than in Iceland's main trading partners. At the same time, the nominal exchange rate rose by 0.4%. By these criteria, it can be assumed that the real exchange rate rose MoM in August, due primarily to nominal appreciation. The nominal appreciation of the ISK between July and August was 2.0%, while the CPI rose by 0.2%.