According to figures from the Central Bank (CBI), Icelanders spent a total of just over ISK 112bn with payment cards in November, an increase of 13% relative to November 2021. In price- and exchange rate-adjusted terms, card turnover grew by just under 3% YoY, its slowest twelve-month growth rate since February 2021.
Growth in payment card turnover loses steam
Payment card turnover grew by a scant 3% year-on-year in real terms in November, its slowest twelve-month growth rate since February 2021. Growth in card use has been easing in recent months, giving rise to the expectation that private consumption growth will be quite a bit slower in Q4 than in the periods beforehand.
As has been the case in the recent past, foreign card turnover was the mainstay of growth. Actually, card use within Iceland was broadly flat YoY in real terms, while card use abroad was up 16%. But card use abroad has begun to lose pace, which accords well with data on Icelanders’ overseas travels. As we discussed last week, Icelanders’ trips abroad plunged by half between October (the all-time high) and November. And for the month of November, trips abroad were fewer than in any November since 2014, apart from the outliers recorded during the pandemic.
November: the standard-setter for 2022 e-commerce
Data from the Icelandic Centre for Retail Studies show clearly how strong November was for e-commerce. Close to 13% of all payment card turnover was due to net-based sales during the month – nearly double the average of 7% for other months in 2022. The November surge is due mainly to the widespread adoption of sales and special offers originating in the US – Black Friday and Singles’ Day, to mention just two – in recent years. Foreign e-commerce providers are very popular among Icelanders, and it is therefore highly likely that the overseas card turnover boom stems in part from online shopping.
Private consumption growth set to ease
Private consumption grew by 10.9% YoY in real terms over the first nine months of 2022, according to Statistics Iceland (SI). This was Iceland’s fastest nine-month growth rate in 17 years, showing clearly that consumers have been treating themselves quite kindly indeed in the wake of the pandemic.
Payment card turnover data for the past few months suggest that private consumption growth will taper off in Q4, and other indicators point in the same direction. For instance, consumer sentiment has been relatively tepid among Icelanders, weighted down, no doubt, by high inflation and rising interest rates.
In our macroeconomic forecast from September, we projected that private consumption would ease in Q4, yet grow by nearly 9% YoY in real terms. The newest figures support our belief that this is the likely outcome. For next year, we expect a growth rate of just under 2%, as households will have depleted their savings to a large degree and real wage growth will be sluggish. For 2024, we project that private consumption will grow by almost 3% as inflation eases and real wage growth gains pace.