Iceland’s economy contracted 1.1% year-on-year in the second quarter of 2026, reversing an upwardly revised 3.8% expansion in the previous quarter. The downturn was primarily driven by weaker net trade in goods. Exports fell 7.3%, after rising 0.7% in the first quarter, as services exports declined 1.1% versus a 5.7% increase previously and goods exports dropped 13.8% versus a 3.5% fall. Imports recovered to 0.2% from a 9.3% decrease, supported by goods imports rising 1.4% after a 13.9% decline, although services imports fell 2.0% compared with a 1.0% decrease in the first quarter. Consumer spending growth slowed to 0.8% from 1.7%, while changes in inventories fell to -0.8% from 1.5%. Gross fixed capital formation rebounded to 5.7% from a 10.4% quarterly decline. On a seasonally adjusted quarterly basis, GDP fell 3.0% in the second quarter after expanding 3.7% in the preceding period.