Iceland’s economy contracted by 1.9% year-on-year in the second quarter of 2025, following an upwardly revised 2.7% rise in the previous quarter. This marked the lowest reading since the fourth quarter of 2020 as decreases were seen in fixed investments (8.3% vs 18.4% in Q1) and government spending (0.3% vs 2.3%). Net external demand also contributed negatively to the GDP, as exports fell (-0.2% vs 4.6%), while imports moderated (13.4% vs 13.7%). Meanwhile, household consumption increased by 3.1% from 2.8% in the previous quarter. On a seasonally adjusted quarterly basis, the GDP shrank by 0.7% in Q2, reversing an upwardly revised 2.9% gain in the preceding quarter.