December 2025 Current Account Report for Iceland: A Surprising Turnaround
Key Takeaways: Iceland’s current account swung sharply to a surplus of ISK 26.90 billion in December 2025, defying expectations of a ISK 46 billion deficit. This marks a significant recovery from the previous quarter’s ISK -82.30 billion deficit and signals improving external balances amid volatile global conditions. The rebound reflects stronger export performance and easing import pressures. However, risks from geopolitical tensions and commodity price volatility remain. Monetary tightening and fiscal consolidation continue to shape the macro backdrop. Forward-looking scenarios suggest cautious optimism but highlight vulnerabilities to external shocks.
Table of Contents
The latest Current Account data for Iceland (IS) released on December 4, 2025, reveals a marked improvement, with a surplus of ISK 26.90 billion. This contrasts sharply with the previous quarter’s deficit of ISK -82.30 billion and the market estimate of a ISK -46 billion deficit, according to the Sigmanomics database. The data covers the period ending Q4 2025 and reflects Iceland’s external balance of payments position, a key macroeconomic indicator influencing currency stability, inflation, and growth prospects.
Drivers this month
- Export revenues surged, particularly in aluminum and seafood sectors, contributing positively to the balance.
- Import demand softened amid cautious consumer spending and higher domestic interest rates.
- Tourism receipts remained stable despite global travel uncertainties.
Policy pulse
The Central Bank of Iceland’s monetary tightening, with policy rates held at 7.50%, has tempered domestic demand and import growth. Fiscal consolidation efforts have also helped reduce external imbalances by limiting government borrowing abroad.
Market lens
Immediate reaction: The ISK appreciated 0.80% against the USD within the first hour post-release, reflecting renewed investor confidence in Iceland’s external position. Short-term bond yields fell by 10 basis points, signaling reduced risk premia.
The current account surplus of ISK 26.90 billion in December 2025 marks a significant turnaround from the ISK -82.30 billion deficit recorded in September 2025. Over the past 12 months, the average current account balance was a deficit of ISK -29.30 billion, underscoring the volatility in Iceland’s external sector. The latest figure is the first surplus since December 2024, when the account posted ISK 45.70 billion.
Core macroeconomic indicators
- GDP growth is estimated at 2.10% YoY for Q4 2025, supported by export strength.
- Inflation remains elevated at 5.30% YoY but shows signs of moderation.
- Unemployment steady at 3.70%, reflecting tight labor markets.
Monetary policy & financial conditions
The Central Bank’s hawkish stance has kept real interest rates positive, curbing inflationary pressures and import demand. Financial conditions remain moderately tight, with credit growth slowing to 3.40% YoY.
Fiscal policy & government budget
Fiscal consolidation continues, with the government targeting a primary surplus of 1.20% of GDP in 2025. Reduced external borrowing has contributed to the improved current account balance.
Chart insight
The chart below illustrates the volatile trajectory of Iceland’s current account over the past two years, with the latest print signaling a potential stabilization and recovery phase after a series of deficits.
This chart confirms a strong rebound in Iceland’s external balance, trending upward after three consecutive quarters of deep deficits. The improvement suggests enhanced competitiveness and external resilience, though sustainability depends on global demand and commodity price stability.
Market lens
Immediate reaction: The ISK/USD exchange rate strengthened by 0.80%, while 2-year government bond yields declined by 10 basis points, reflecting improved market sentiment and lower risk premiums following the positive current account surprise.
Looking ahead, Iceland’s current account trajectory will hinge on several key factors, including global commodity prices, tourism recovery, and domestic policy settings. The Sigmanomics database suggests three scenarios for the next two quarters:
Scenario analysis
- Bullish (30% probability): Continued export growth and stable commodity prices push the current account surplus above ISK 40 billion, supporting ISK appreciation and lower inflation.
- Base (50% probability): Moderate export gains offset by steady import demand keep the current account near balance, with ISK trading in a narrow range.
- Bearish (20% probability): External shocks, including geopolitical tensions or commodity price drops, trigger renewed deficits exceeding ISK -50 billion, pressuring the currency and inflation.
Structural & long-run trends
Iceland’s economy remains vulnerable to external shocks due to its small size and commodity dependence. However, ongoing diversification efforts and fiscal prudence improve resilience. The current account’s recent volatility underscores the need for continued policy vigilance.
The December 2025 current account surplus for Iceland marks a welcome reversal from recent deficits, reflecting stronger exports and restrained imports amid tighter monetary and fiscal policies. While this improves macroeconomic stability and investor confidence, risks from global uncertainties and commodity price swings remain. Policymakers should balance growth support with external stability to sustain this positive momentum. Market participants will closely watch upcoming trade and capital flow data for confirmation of this trend.
Key Markets Likely to React to Current Account
Iceland’s current account balance is a critical barometer for currency strength, bond yields, and equity performance. The following tradable symbols historically track or influence the current account dynamics:
- USDEUR – Reflects broader USD strength impacting Iceland’s trade competitiveness.
- ICE – Icelandic stock index sensitive to export sector performance.
- BTCUSD – Cryptocurrency flows can affect capital account and risk sentiment.
- EURISK – Directly tracks ISK against the Euro, key for trade and tourism.
- ALCOA – Aluminum producer influencing Iceland’s export revenues.
Since 2020, Iceland’s current account balance has shown a positive correlation with ALCOA’s stock price, reflecting aluminum exports’ weight in the economy. Periods of rising ALCOA prices coincide with current account surpluses, while declines often precede deficits. This relationship underscores commodity price sensitivity in Iceland’s external sector.
FAQ
- What is the significance of Iceland’s current account surplus in December 2025?
- The surplus indicates improved external balances, driven by stronger exports and weaker imports, signaling enhanced economic resilience.
- How does the current account affect Iceland’s monetary policy?
- A healthier current account reduces pressure on the ISK, allowing the Central Bank to maintain tighter monetary policy without risking currency instability.
- What are the main risks to Iceland’s current account outlook?
- Risks include global commodity price volatility, geopolitical tensions, and potential downturns in tourism and export demand.
In summary, Iceland’s current account reversal to a surplus in December 2025 offers a positive signal for macroeconomic stability. Continued vigilance is required to navigate external uncertainties and sustain growth.
The current account balance for Iceland in December 2025 registered a surplus of ISK 26.90 billion, a sharp improvement from the ISK -82.30 billion deficit in September 2025 and well above the 12-month average deficit of ISK -29.30 billion. This reversal highlights a significant shift in external trade and capital flows.
Compared to the previous quarter, exports increased by 7.80%, driven by higher commodity prices and increased demand from Europe and North America. Imports declined by 4.20%, reflecting subdued domestic consumption and tighter credit conditions.