Card turnover jumped unexpectedly in June, according to newly published figures from the Central Bank (CBI). Households swiped their payment cards to the tune of nearly ISK 133bn during the month, a nominal increase of 8.6% year-on-year. Our calculations indicate that this equates to a price- and exchange rate-adjusted increase of 3.4%. It was the first real rise in card turnover since February of this year.
Card turnover picks up despite downbeat sentiment
Payment card turnover enjoyed a fillip in June, even though consumers are pessimistic. Nevertheless, underlying developments suggest muted private consumption growth ahead, as high interest rates, persistent inflation, and an uncertain labour market have a dampening effect on households at present.
What is noteworthy is the nearly 2% real increase in turnover within Iceland, after a steady stream of contractions dating back to February. Less unexpected was the rise in card turnover abroad, which measured 8% in real terms. Apparently, the more than 5% YoY decline in Icelanders’ departures from Keflavík Airport this June, reported by the Icelandic Tourist Board, had little effect on overseas card turnover. Presumably, the drop in foreign travel was offset by growth in Icelanders’ shopping with foreign online merchants.
So. Are we looking at a vibecession?
As we have discussed recently, Icelanders have been all but despondent lately about economic developments and prospects. Surprisingly, though, they do not seem convinced that they need urgently to slash household spending. As we noted in our discussion, Icelanders are still ready to shell out for big-ticket items, according to the Gallup major purchase index, which measures households’ planned car, home, and overseas travel purchases.
Although households are generally well positioned financially, there are plenty of clouds on the horizon. The labour market has weakened, as we have noted recently. Furthermore, real house prices have sagged a bit. Against this backdrop, households could well be concerned about negative wealth effects and greater uncertainty about their income in the near future, even though their financial position is strong at the moment.
In this context, it is interesting to note that American economists have been talking recently about a phenomenon they call vibecession. A vibecession is a paradoxical situation featuring household sentiment and expectations consistent with a recession, at a time when traditional indicators such as unemployment, real wage growth, private consumption, and output growth do not suggest a comparable economic downturn.
As the chart indicates, expectations in Iceland and the US have been similar in that they have been at levels reminiscent of the financial crisis of the late 2000s or the peak of the COVID pandemic. Just as in Iceland, most statistics from the US labour market and real economy are not nearly as negative as during those two deep economic slumps. A similar pattern can be seen in the UK, although it is less pronounced, while in mainland Europe, expectations and economic developments are better aligned.
In this context, we think it useful to focus on developments in inflation and interest rates. Inflation has been more stubborn in the US and the UK than in the eurozone, and policy interest rates in the former two economies are accordingly higher. It has been posited abroad that the strong, visible impact of rising prices and higher interest rates affects consumers’ perceptions of economic developments and prospects much more than less obvious factors such as national accounts and labour market data do.
Recent measurements of consumer sentiment therefore seem rather to be a high-frequency indicator of financial strain instead of being a contemporaneous indicator of households’ consumption capacity. Inflation and interest rates affect consumers perceptions, not only through their direct impact on disposable income and debt service burdens but also because of their prominence and visibility and the message they send about future economic risk. As a result, consumers’ perceptions about their economic environment can deteriorate far more than is ultimately warranted by subsequent developments in private consumption, employment, or GDP.
Outlook for subdued private consumption growth
Card turnover often gives a reliable snapshot of developments in private consumption, as Icelanders use cards for the vast majority of their day-to-day consumption spending. In Q2/2026, card turnover grew in real terms by an average of 0.3% YoY, its slowest since Q4/2023.
In Q1/2026, it grew by 2.2%, according to preliminary figures from Statistics Iceland (SI). Card turnover figures suggest that private consumption growth was negligible in Q2, and perhaps even flat. SI’s first national accounts figures for the quarter will be published in late August.
At the beginning of the summer, we forecast that private consumption would grow by an average of just under 2% in 2026. In our opinion, that forecast still holds, and if anything, the possibility of even weaker growth has increased since then.
