Overseas use of domestic payment cards reflects consumers’ spending while travelling abroad, plus their goods purchases from foreign online merchants. Icelanders have been keen to travel year-to-date, which has doubtless accounted for most of the increase in foreign card turnover during the period. Actually, newly published figures from the Icelandic Tourist Board indicate that Icelandic nationals’ departures via Keflavík Airport were up nearly one-fourth YoY in H1. Those figures should be interpreted with some caution, however, as the split between domestic and foreign passengers in the data has fluctuated widely in recent measurements, and there are signs that the share of foreign nationals is underestimated. For comparison, domestic card use abroad increased in deflated terms by nearly 13% YoY in H1/2025.

Tailwinds for private consumption

Private consumption grew by 2.3% YoY in Q1/2025, according to SI figures, its fastest pace in two years. In Q2, card turnover grew by an average of 5.5%, buoyed up by strong growth in April and May. By this measure, it was the fastest growth rate seen since Q3/2025, when private consumption increased more than 7%, according to data from Statistics Iceland (SI).

Other indicators that set the tone for private consumption point in the same direction, supporting us in our expectation of robust private consumption growth in Q2/2025. Among these additional indicators is sales of motor vehicles to individuals, which surged by about 47% YoY during the quarter. Furthermore, the Gallup big-ticket index, which measures consumers’ planned purchases of housing, overseas travel, and motor vehicles, has picked up the pace year-to-date relative to 2024.

Overall, households are in a good position to step up their consumption spending without pushing their personal finances to the brink. Many have sizeable accumulated savings, and real YoY wage gains have been relatively strong in recent quarters, in spite of persistent inflation. On the other hand, unemployment has inched upwards, although there is discernible tightness in some pockets of the labour market. Moreover, population growth has tumbled from its recent peak. For example, data from Registers Iceland show that Iceland’s population grew by 0.7% between 1 December 2024 and mid-2025, which translates to a 1.2% annualised increase. Over the twelve months before then, the annualised rate of growth was 1.9%, and in both 2022 and 2023 it was 3% per year. With the proviso that Registers Iceland data may contain some hidden errors, we consider the slowdown in population growth unambiguous.

In our macroeconomic forecast from end-May, we projected year-2025 private consumption growth at 2.7%, the strongest growth rate since 2022. Based on indicators available to date, that forecast still seems valid. For 2026 and 2027, we expect more modest growth measuring 2.1% and 2.6%, respectively. A declining real interest rate should support consumption growth further ahead, but subdued population growth and modest real wage gains will probably dampen it starting in 2026.