Household payment card turnover grew by 12% YoY in December, to ISK 124bn, according to new data from the Central Bank of Iceland (CBI). In price- and exchange rate-adjusted terms, however, it grew by just over 1% YoY, the slowest growth rate since February 2021. Card turnover growth has slowed markedly in the recent term, from the H1 average of 14% per month in real terms to the H2 average of 5.5%.
Card turnover growth continues to ease
Payment card turnover grew by just over 1% year-on-year in real terms in December, its slowest pace since February 2021. Presumably, private consumption will prove considerably weaker in Q4/2022, after ballooning to record levels over the first nine months of the year.
Icelanders’ card use abroad was the mainstay of growth in December, as it has been in recent quarters. Foreign turnover totalled ISK 23bn, an increase of nearly 13% YoY in real terms, while turnover within Iceland fell by 1% to ISK 101bn, also in real terms. Real card turnover within Iceland has either remained flat or contracted since August 2022. Growth in turnover abroad has also begun to slow and is likely to keep doing so in the months to come.
Icelanders’ departures on overseas flights totalled 42,000 in December, which was 3% less than in the same month of 2019 and 15% less than in December 2018. Icelanders were incredibly keen to travel from May through October, after the pandemic loosened its grip, and departures for points abroad were 11% higher, on average, than in the same period of 2019. October set an all-time record, in fact, with one in five Icelanders travelling overseas. The surge abated in November and December, however, when departures were far fewer than in the same months of 2019.
Presumably, most Icelanders managed to slake their thirst for travel during the months from May through October. But it is also likely that Icelanders have begun to feel the effects of rising prices and high interest rates and have adjusted their plans accordingly. Real wages as measured in terms of the CPI have shrunk in the recent term, and household sentiment is quite muted after a spate of optimism lasting until mid-2022.
Slower private consumption growth in the offing
The past few months’ sluggish growth in card turnover suggests that private consumption growth lost considerable steam in Q4/2022. Private consumption grew by 10.9% YoY in real terms in the first nine months of 2022, the fastest pace recorded in 17 years. Growth peaked in Q2, at 13% in real terms, and then slowed to 8.6% in Q3.
Based on the Q4 data currently available, the outlook is for even weaker growth in Q4. Our forecast of 9% private consumption growth in 2022 as a whole is probably close to accurate. For 2023, the outlook is for markedly slower growth. In our macroeconomic forecast from September, we projected year-2023 private consumption growth at just under 2%, as real wage growth looks set to be rather tepid, the effects of CBI interest rate hikes are showing more and more in households’ consumption and saving behaviour, and the employment situation is likely to be more stable than in the recent past after the rapid decline in the jobless rate.