Q1 was characterised by modest growth in price- and exchange rate-adjusted household card turnover. Turnover abroad gained ground, as it typically does, but card turnover within Iceland has also grown in real terms in recent months. In all, card turnover grew year-on-year by 1% in March and 2.8% in Q1. Tepid growth in March is probably due to the timing of Easter, which falls relatively late this year.
Payment card turnover grows in real terms in Q1/2025
Households’ payment card turnover grew in price- and exchange rate-adjusted terms in Q1. It was the fifth consecutive quarter with positive real growth, and as before, the lion’s share of the increase stems from card use abroad. The outlook is for private consumption to pick up in the coming term.
The Easter holidays: timing matters
In 2024, real growth in household card turnover abroad measured 19.5% YoY in March, as Easter Sunday fell on the last day of that month. This year, however, Easter falls on the third Sunday in April, and a large share of card turnover therefore shifts not only between months but also between quarters. In spite of this, households’ domestic and overseas card turnover grew in real terms, both in March 2025 and in Q1 as a whole. Growth was more muted in March than in the months beforehand, though, at 1.0% in the domestic market and 1.1% overseas. Real YoY growth between quarters still shows strong signs of increased consumption abroad, as households’ card use overseas increased by 7.5% YoY in Q1/2025. Total household card turnover therefore grew between years by 1.0% in March and 2.8% in Q1.
According to the most recent data from the Icelandic Tourist Board, Icelanders travelled abroad in greater numbers this March than in the same month of 2024, even though Easter fell in March last year. Nevertheless, Keflavík Airport departure numbers should be interpreted with a healthy dose of caution, as has repeatedly been pointed out on the news website ff7. The most recent card turnover figures also suggest that there may be flaws in departure data, as growth in overseas card use was modest in comparison with the estimated number of Icelanders travelling abroad via Keflavík Airport.
The contributions from card turnover at home versus turnover abroad have remained broadly stable recently, with the contribution from turnover within Iceland ranging between 75.9% and 81.5% in the past two years. In March 2025, card use in Iceland accounted for 76.9% of total turnover and card use abroad 23.1%. The contribution from domestic use is therefore close to its lower bound at present, as it has been in recent months apart from December.
Private consumption set to pick up in the coming term
In our macroeconomic forecast from January, we projected that private consumption would gain momentum during the forecast horizon. More specifically, we projected private consumption growth at 2.7% in 2025, 2.4% in 2026, and 2.3% in 2027, and as of now we think this forecast is close to accurate. The CBI’s most recent forecast, published in the February 2025 issue of its quarterly Monetary Bulletin, strikes a similar tone.
Private consumption accounts for just over half of GDP and therefore carries considerable weight in the national accounts. In Q4/2024, it grew by 0.8% in real terms. In addition, figures for previous quarters were revised upwards, with the result that in Q2, for instance, there was only a marginal contraction, whereas previous figures had indicated a sizeable one. Developments for the full year were therefore very similar to those in 2023. In all, private consumption grew in real terms by 0.6% in 2024, as compared with 0.5% in 2023. In our January macroeconomic forecast, we projected year-2024 private consumption growth at 0.9%, so the actual outcome is rather weaker than we had expected – assuming that the numbers are not revised upwards later on.
Recent expectations surveys indicate stronger private consumption in the near future, however, and consumer expectations correlate quite strongly with actual developments. In our recent discussion of expectations survey results, we noted, among other things, that the increase in the Gallup Consumer Confidence Index and the big-ticket index of planned major purchases indicated strongly that private consumption was rising and would keep doing so in the months ahead.
In our opinion, several key factors are likely to boost private consumption in the near term. We think it likely that households will step up their spending on consumer durables after having stayed their hand in the recent past – particularly if the CBI continues to lower interest rates. New car registration data from Bílgreinasambandið, the Icelandic association of motor vehicle sales and service entities, already suggest a YoY surge in households’ new car purchases in 2025 to date. Furthermore, new figures from Statistics Iceland (SI) imply that spending related to international travel has increased, and payment card turnover data bear this out. SI data indicate as well that real wages and real disposable income have risen in recent months. We expect real wage growth to continue in tandem with falling inflation and interest rates. This is offset, however, by a marked slowdown in population growth in Q1/2025.
