Foreign trade

Iceland is a fairly open economy, with imports and exports of goods and services amounting to 46% and 35% of GDP respectively in 2007. Trade involves a relatively large share of primary products and commodities, but exports have diversified significantly in recent years. Certain factors restrict its openness, however, such as geographic distance from major population centres, limited intra-industry and transit trade, a natural resource-based export sector, and extensive protection of domestic agriculture.

Fish and other marine products were the mainstay of merchandise exports until early in 2008, when exports of aluminium smelting products emerged as the largest single export product. Fish and other marine products have been declining as a share of total exports over the past four decades. In 2007, fish and other marine products accounted for 42% of merchandise exports and roughly 28% of total exports, down from 82% and 60% respectively in 1991. Exports of manufactured goods have been growing rapidly in importance, led by aluminium smelting and medical and pharmaceutical products,and accounted for 39% of merchandise exports in 2007.

Exports of services have also soared as the economy becomes increasingly service-oriented. Services now account for almost 33% of total export revenues, while in 1990 the share was 26%.

Iceland imports a wide range of manufactured goods and commodities, reflecting both the small size of the economy and the limited range of natural resources. Imports of industrial supplies accounted for 40% of total merchandise imports in 2007. Capital goods and consumer goods constitute around 30% of total imports each.

Free trade arrangements with Europe have stimulated Iceland’s trade with the region, causing the share of North America to fall. In 2007, 78% of merchandise exports went to the member countries of the EEA, which also were the source of 65% of imports. Currently, the largest trading partner countries are the Netherlands, Germany, the US, the UK, and the Nordic countries Denmark and Sweden. In terms of currency, the euro area constitutes the largest trading area, accounting for 42% of imports and 26% of exports. In recent years, Iceland has generally had a trade surplus with the UK, the Netherlands and the Iberian countries, but a deficit with the US, Germany, Japan and its Nordic neighbours.

Iceland’s ratio of services to total trade is one of the highest among OECD countries. Data on the direction of services trade are not as reliable as merchandise trade data. However, just over 1/2 of Iceland’s services exports in 2007 used the euro, just under 1/6 used the GBP, and only just under 1/10 used the USD as the vehicle currency.

Economy of Iceland,Central Bank of Iceland