On the other hand, it looks as though the pandemic’s impact on Icelanders’ total consumption has already tapered off, and card turnover is now above the pre-pandemic level by all measures. In comparison with Q1/2019 (before the pandemic), domestic card turnover grew in real terms by over 11% YoY, while foreign card turnover was up 1%.

From goods to services

It is interesting to drill down into card turnover data published by the Icelandic Centre for Retail Studies. According to these numbers, card turnover grew month-on-month in nearly all categories, which accords with the aforementioned CBI data. But there has been a clear shift in consumption patterns in the past year. In comparison with March 2021, turnover in domestic retail and wholesale stores contracted by just under 4% in March 2022, while turnover in service-related sectors shot up 30%.

But this should hardly be surprising, as the pandemic-related restrictions were at their high-water mark a year ago, and activity in some services sectors was even suspended for a while. It is intriguing, though, to see how total consumption largely held its ground during the pandemic, and how consumption behaviour changed over that period. This can be seen quite well in itemised payment card data for March 2022, which show turnover contracting YoY in stores selling building supplies (-19%), alcoholic beverages (-29%), and home appliances (-5%). As is still fresh in most minds, people spent considerable time at home during the height of the pandemic, and many either took the opportunity to tackle home renovation and repair projects or used the funds they would otherwise have spent travelling abroad or buying services to renew their equipment and appliances.

The opposite pattern can be seen in services-related turnover. It is unsurprising that turnover in travel agencies and travel-related businesses should mushroom between years (+512%), but turnover also rose in other related categories, such as guest accommodation (26%), restaurants (24%), and petrol and motor vehicle repair (20%), to name but a few.

Private consumption growth in the cards?

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 in real terms by 7.6% between 2020 and 2021, and by 4.4% between 2019 and 2021.

We think it likely that private consumption grew markedly in Q1, and the outlook for the months to come is for continued growth. Clearly, the war in Ukraine did not have a discernible impact on card turnover in March, although consumer sentiment among Icelanders sagged slightly during the month. But we do think the war could affect private consumption in Iceland indirectly, as higher imported inflation will very probably cut into households’ purchasing power. Near-term developments in private consumption will therefore depend not least on developments in inflation over the next few months, and on the wage agreements negotiated after the current private sector contracts expire late this year.