With GDP figures available in fixed prices, it is now possible to measure whether the volume of produced goods and services is growing or shrinking irrespective of price trends. Real economic growth is measured by the annual GDP change in fixed prices.
The real GDP growth was 5.6% in 2021. The annual real GDP growth for the 2008-2021 period averaged at 2.6%.
Strong economic growth after the financial crisis
As in many other countries, the Faroese economy experienced a real economic decline in 2009 and 2010.
This decline turned into strong growth in 2011, with an annual real GDP growth of between 4 and 7 percent up to 2014. This was followed by slower growth in 2015 and 2016 when the real GDP growth ranged between 1 and 1.5 percent.
In 2017 and 2018, the annual real GDP growth was between 2.5 and 3.5 percent.
Strong GDP growth resumed in 2019 when the real GDP growth reached 5 percent.
The COVID-19 pandemic had a negative effect on the economy in 2020, but it recovered in 2021.
Varying growth across the branches
The contribution of each industrial branch to the overall GDP growth can be found by looking the gross value added (GVA) in each branch and their contribution to growth.
Real GVA growth was negative in 2009 and 2010. The GVA from the primary industry was positive in 2009 and 2010. However, the negative contribution to growth, especially from the production industry, resulted in overall negative GVA growth these two years. This decline in the production industry was to a significant extent the result of a downturn in construction and food production.
The period from 2011 to 2014 saw unusually strong real GVA growth, partially due to the service industry recovering from the financial crisis. The total catch of mackerel increased sharply in 2010 and 2011, and the primary industry also had a positive GVA contribution in this period. The volume of salmon caught increased by a third in 2011, which also resulted in a positive GVA contribution. The annual change in the real GVA growth was just over 6 percent in 2013. Half of the contribution to growth came from the primary industry. The total catch of mackerel increased by more than a third in 2013, while the total catch of herring and blue whiting more than doubled.
Growth continued in 2015-2018, although this growth was slower than in the previous years. In 2015, the primary and the production industries experienced real decline after many years of growth. These years also saw declining GVA growth in the tertiary sector.
Significant GVA growth returned in 2019. The greatest GVA contribution came from the production industry, partly due to a big increase in the total catch and exports of cod and haddock. The aquaculture industry also enjoyed considerable growth in 2019.
The pandemic affected the GVA in 2020, with the service and primary industries seeing the greatest real decline. In the service industry, tourism and transport suffered the most from the pandemic. The decline in the primary sector was not a direct consequence of the pandemic as the catch of salmon and the overall fish export volume dropped significantly.
The industry began recovering as early as the following year. The real GVA for 2021 was 5.5%. Most service industries had a strong 2021, representing 4% in the contribution to the total GVA growth. The volume of salmon caught reached a record-high in 2021, and the total mackerel catch doubled, which contributed significantly to the overall real GVA.
More economic growth than in other Nordics
It is now possible to compare real GDP growth in the Faroese economy with that of other nations. All the Nordic countries experienced broadly similar real GDP growth in 2021.
From 2008 to 2021, the real GDP growth in the Faroe Islands has averaged at 2.6% annually. This growth has been greater than in many other nations. In this period, the average annual real GDP growth for the OECD member nations was 1.5%. In Denmark and Iceland, this figure has averaged at 1.2% and 1.4%, respectively, in this period.
From 2011 to 2014, the Faroes enjoyed more economic growth than the other Nordic nations. As mentioned above, this period saw a sharp increase in resources, and the service industries also enjoyed extensive growth. The real GDP growth in the Faroes slowed down somewhat in 2015-2016. In 2017 and 2018, the growth reached the same levels as in Denmark and Norway, while Iceland experienced more growth in 2015-2018. In 2019, the Faroes again reported a higher economic growth than the other countries. As can be seen in the graph above, the Faroese and Icelandic economies have much greater fluctuations than the other countries with larger economies.