Turnover with domestic payment cards increased markedly in May, totalling ISK 141.5bn for the month. Once again, growth was positive in real terms, in Iceland as well as overseas, although card use abroad picked up much more in percentage terms, in keeping with the recent pattern. The past few months’ card turnover figures have shown signs of a surge in private consumption, and new motor vehicle registrations show that individuals’ car purchases have also increased this year. The turnaround in consumer durables purchases, coupled with stable real growth in payment card use, suggests that private consumption will grow significantly this year.
Real card turnover grows in May, with strong private consumption growth expected in the near future
Payment card turnover is still increasing, driven by a surge in card use abroad. Private consumption grew apace in Q1, and the most recent payment card data suggest that it will keep doing so. The outlook is for continued private consumption growth in the years to come.
Overseas card turnover still on the rise
In May, households’ payment card use within Iceland grew by 3.3% year-on-year in price-adjusted terms. Turnover abroad was quite a bit more buoyant, however, growing by 18.1% in price- and exchange rate-adjusted terms. Overall, real growth in households’ card use measured 6.4% in May. The contribution from overseas card use measured 23.3%, while card turnover in Iceland accounted for the other 76.7%. The domestic contribution has tapered off in the recent term, after measuring 80% or more until about two years ago.
According to data from the Icelandic Tourist Board, a total of 66,733 Icelandic nationals departed via Keflavík Airport in May, a YoY increase of more than a fourth. Appetite for travel therefore goes hand-in-hand with payment card use abroad.
Why is card turnover gaining steam?
Several factors have contributed to the recent increase in card turnover. Households’ card use overseas has grown far more rapidly than card use in Iceland, owing mainly to post-pandemic appetite for travel and a boom in online shopping with foreign merchants. Furthermore, households scaled back their durables purchases when interest rates were uncomfortably high, and they probably shifted a portion of that money to other types of consumption instead. This is strongly suggested by the year-2024 national accounts, which show that private consumption grew by only 0.8%, even though real payment card turnover rose virtually uninterrupted for the entire year.
Households have been putting money aside, and their savings are historically high at present. The saving rate is a full 12% above the 2015-2019 average, and households’ financial position is strong. Concurrent with this increase in saving, households’ interest income has grown faster than their interest expense, even exceeding it in the past two years.
Most indicators imply continued private consumption growth in the years ahead
Card turnover has increased in real terms each month in 2025 to date, and overseas turnover in April was the highest on record, probably owing in part to the timing of Easter, which fell in March last year and April this year. In the high interest rate environment of the past few years, households have been cautious about spending. This year, though, private consumption looks set to pick up the pace. In our recent macroeconomic forecast, we projected that it would grow by 2.7% in 2025. The rise is likely to continue in 2026, albeit somewhat more slowly – 2.1%, according to our forecast. For 2027, we expect it to rebound to 2.6%, supported by lower interest rates and stronger real wage gains.
New car registrations have picked up again after last year’s lull, and we expect them to contribute to increased private consumption. Other consumer durables purchases will doubtless gain pace as well, with a portion of accumulated savings allocated to consumption spending, although it is unclear how much and how quickly this will happen. Naturally, it will depend in large part on how much interest rates fall during the forecast horizon. We have projected a policy rate of 7.0% at the end of 2025 and 5.0-5.5% by the end of the forecast period.
