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Card turnover data indicate a shift in private consumption

Icelanders have started to feel the pinch from high inflation and interest rates, as last month’s payment card turnover figures indicate. Card turnover data give a reliable signal of upcoming developments in private consumption growth, which appears set to keep slowing down after having been the main driver of GDP growth in the recent past.

Turnover using domestic payment cards totalled ISK 117bn in August, an increase of 5% year-on-year according to data just published by the Central Bank (CBI). But quite a different scenario emerges when the turnover figures are adjusted for price and exchange rate movements, which shows that card turnover shrank in real terms by nearly 5%. The CBI also revised its figures for July. According to the updated numbers, card use shrank by a full 2%, whereas the previous data indicated that it had remained flat between years. According to these newest figures, August was the fifth consecutive month to see real payment card turnover contract YoY.

Icelanders’ travel behaviour has turned a corner

Real turnover with Icelandic payment cards was down both at home and abroad in August, continuing the pattern we have seen in recent months. Card use within Iceland shrank by just over 3% YoY, while turnover abroad was down nearly 10% over the same period. This is the biggest drop in foreign card turnover since the beginning of 2021. But it comes as no surprise given the major change in Icelanders’ overseas travel. After acting freely on their wanderlust in 2022 and early 2023, Icelanders have scaled down their foreign trips in recent months (apart from July). In August, Icelanders’ airport departures were down 8.5% relative to the same month in 2022.

Perhaps most Icelanders managed to slake their thirst for travel last year, when it was keenest in the wake of the pandemic. But it is also likely that they have started feeling the effects of rising prices and high interest rates and have furled their sails in response.

Private consumption growth down sharply

In our opinion, developments in card turnover give a reliable indication of a shift in Icelanders’ consumption behaviour. Households appear to be hitting the brakes pretty firmly after their recent spending spree. Other indicators – such as the Gallup Consumer Confidence Index, which is still in the red – support our view.

Private consumption grew in real terms by 0.5% YoY in Q2/2023. This is a significant change relative to previous quarters, not to mention the slowest growth rate since Q4/2020. In the first half of 2023, private consumption growth measured 2.5%, and the latest card turnover numbers suggest strongly that it will be even weaker in H2. In our macroeconomic forecast from this spring, we projected the growth rate for the year at just over 3%. But based on the figures above, this was probably too optimistic. A new macroeconomic forecast from ÍSB Research is forthcoming in the next few weeks.


Bergthora Baldursdottir