According to newly published payment card turnover data from the Central Bank (CBI), turnover using domestic cards totalled just over ISK 82bn in February, some 13% more than in February 2021 and 4.5% more than in the same month of 2020. In price- and exchange rate-adjusted terms, card turnover grew by 10.5% year-on-year.
Card turnover still on the rise
As in recent months, Icelanders’ payment card use abroad is the mainstay of card turnover growth. Near-term developments in private consumption are uncertain because of the war in Ukraine. Growth will probably be more sluggish than previously anticipated, as higher imported inflation cuts into households’ purchasing power.
As in recent months, there was a vast difference between card use within Iceland and card use abroad. In real terms, card turnover within Iceland grew by only 0.5% YoY, its slowest rate since the recent post-pandemic growth spurt began. Not so with card turnover abroad, which grew by 93% YoY in real terms after having come to a virtual standstill during the pandemic.
Comparing February 2022 with the same month in 2020, just before the pandemic struck, shows a real growth rate of 7% for card turnover in Iceland and 4% for card turnover abroad. As these figures indicate, payment card use at home and overseas has already returned to its previous level and is now even higher than it was pre-COVID.
Will the Ukraine war affect private consumption?
Payment card turnover is a reliable indicator of developments in private consumption, which has rebounded strongly after contracting by 3% in 2020. Private consumption grew by 7.6% between 2020 and 2021, and by 4.4% between 2019 and 2021, suggesting that consumption levels have recovered and then some.
February card turnover data do not capture developments since the Russian invasion of Ukraine, which began on the 24th of the month. The impact of the war is more likely to show in figures for upcoming months.
We believe the war could have an indirect effect on private consumption in Iceland. In the 14 March 2022 issue of Icelandic Market Daily, we discussed the effects of the war on the Icelandic economy, noting that it will very probably have a dampening effect on private consumption. Higher imported inflation cuts into households’ purchasing power, and consumer sentiment will probably grow markedly bleaker in upcoming measurements. Households have a tendency to spend less freely during times of uncertainty, and private consumption patterns will clearly be affected by developments in the war over the weeks and months to come.