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Card turnover surging in the run-up to the holidays

Real payment card turnover was up by one-fifth year-on-year in November. Growth in card use abroad remains brisk, reflecting increased international travel and booming cross-border e-commerce. Card turnover figures indicate that private consumption is now considerably stronger than before the pandemic, suggesting that for many households, the Corona Crisis is in the rear-view mirror.

According to new payment card data from the Central Bank (CBI), total turnover using Icelandic payment cards amounted to ISK 99.7bn in November, a YoY rise of more than 22% in ISK terms, although it hardly need be stated that the last quarter of 2020 was deeply affected by COVID-19.

In price- and exchange rate-adjusted terms, the YoY rise in card turnover measures 19.9%. As in recent months, there is a marked difference between developments in Iceland and developments abroad, although the increase is sizeable in both categories. For instance, card use at domestic retail stores and service providers rose 11% YoY in real terms, while card use abroad ballooned by 89%.

Card turnover well above pre-pandemic levels

This YoY surge in card use should take no one by surprise, given that the pandemic has had much less impact on domestic economic activity in the past few quarters than it did for most of 2020. It is interesting, then, to compare the recent trend with the pre-pandemic period.

Comparing early 2020 to the corresponding months in 2019 shows an abrupt reversal in real household consumption. From the time the pandemic struck until the spring of 2021, consumption contracted sharply relative to the pre-pandemic period. But from June 2021 onwards, a shift occurred, and in each month except August, household spending was much stronger in real terms. In October, for instance, card turnover was up by a full 11% YoY, and in November it was nearly 14% higher.

There are doubtless many reasons for this intriguing trend. Households’ financial position has generally been improving, and many have accumulated sizeable savings that they have been using recently. Furthermore, holiday shopping has been starting earlier in Q4, not least because of increasingly popular sales held in November.

Appetite for travel affects card turnover numbers

Last but certainly not least, Icelanders’ zest for travel has been rekindled in response to widespread vaccination and relaxation of border restrictions in neighbouring countries. According to data from the Icelandic Tourist Board and Isavia, nearly 34,000 Icelanders departed via Keflavík Airport in November. Although this was a slight decline relative to October (just over 39,000), it was still Icelanders’ second-largest travel month since the pandemic struck.

A growing desire to travel coupled with brisk trade with foreign online merchants can be seen in the aforementioned surge in overseas payment card use. In November, overseas card turnover hit a new post-pandemic high of ISK 18.4bn. At the same time, foreign card use in Iceland has contracted steadily since this summer, and payment card-related foreign currency flows have turned negative. The surplus on the payment card turnover balance – i.e., foreign card turnover in Iceland net of Icelandic card turnover abroad – was largest in August, at just over ISK 10bn. By November, however, the turnover balance was negative by nearly ISK 8bn, as card turnover generated by tourists and other non-residents was outweighed by Icelanders’ spending overseas.

Are households leaving the Corona Crisis behind?

Currently available card turnover figures for Q4/2021, reflecting two of the three months in the quarter, sketch a convincing picture of strong private consumption growth towards the close of the year. It is still worth noting, though, that because consumers appear to be doing their holiday shopping earlier than before, December figures could be affected by the shift. We consider it likeliest, however, that private consumption will grow handsomely in Q4/2021, perhaps even outpacing the nearly 9% YoY growth measured in Q2.

In our macroeconomic forecast from September, we projected year-2021 private consumption growth at 4.8%. The numbers above suggest that this is a modest projection and that the actual growth rate could turn out closer to 6%. Clearly, then, private consumption is steadily regaining momentum, not only rebounding fully from last year but also overtaking the 2019 total. It can thus be said that a fair share of Icelandic households have put the Corona Crisis behind them and embarked on a robust new growth phase.


Jón Bjarki Bentsson

Chief economist