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Icelandic Financial Market Digest 15. maí

Publisher: Íslandsbanki Research • Resp.Editor: Ingólfur Bender

Zeal for spending continues largely unabated

Developments in payment card turnover indicate that domestic private consumption is still growing at a brisk pace. That said, the growth rate is easing slightly, and this, combined with changes in the composition of spending, indicates that private consumption will grow more slowly this year than in 2017. 

According to newly published payment intermediation figures from the Central Bank (CBI), turnover on domestic payment cards totalled just under ISK 81bn in April, an increase of 15% year-on-year in ISK terms. Real YoY growth in card turnover measured slightly less than 14% in April, after adjusting for inflation and exchange rate movements. In a departure from the recent pattern, there was little difference between YoY growth in domestic turnover and growth in foreign turnover, owing to base effects from April 2017, as the chart shows. The timing of Easter, which came much earlier this year than last year, could explain this to a large extent. 
 
During the first four months of 2018, card turnover grew by over 10% YoY in real terms. This is somewhat slower than last year’s average of just over 11%. Nevertheless, it is a healthy growth rate, indicating that private consumption growth remains robust. 

More plane tickets, fewer cars?

Indicators suggest, however, that growth in 2018 will turn out somewhat below last year’s 7.8%. Real wage growth has eased, and it appears that population growth will also be slower this year than in 2017. Furthermore, the Gallup Consumer Confidence Index has been noticeably lower, on average, in 2018 to date than it was last year. 

It is also worth noting that, according to Gallup’s last major purchase index measurement, Icelanders are less inclined towards car purchases than before and are leaning towards overseas travel instead. Motor vehicle purchases only show to a limited extent in card turnover figures, but they can have a strong impact on overall developments in private consumption; therefore, current developments in card turnover may give a somewhat exaggerated view of total private consumption growth. In January, we projected this year’s private consumption growth at just under 5%, about the same as in 2015.


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