Continued slowdown in household card turnover

Domestic demand has lost steam in recent quarters, as can be seen in the decline in payment card turnover according to newly published figures for March. Private consumption also contracted in Q4/2023, and card turnover data for Q1/2024 suggest that the downward trend will continue. Eastertide travel affects card turnover abroad but will probably be split between March and April this year.

In real terms, turnover with domestic payment cards contracted year-on-year in March. It totalled just under ISK 113bn, which translates to an increase of 1.1% in nominal terms. In price- and exchange rate-adjusted terms, households’ card turnover contracted by 1.4% YoY in March. Card use within Iceland contracted by 4.7% in real terms, whereas card turnover abroad grew in real terms by 12.6%. In our opinion, these data clearly indicate a cooling economy and the impact of a high policy interest rate on demand.

Card use within Iceland continues to shrink, while card use abroad is still growing

Households’ card use in Iceland contracted in real terms by 4.7% in March, whereas real card turnover abroad grew by 12.6% over the same period. The uptick in payment card turnover abroad goes hand-in-hand with the number of Icelanders who travelled abroad during the month. Because Easter came early this year, these figures are unsurprising; in fact, the increase in overseas card use strikes us as relatively moderate – although a sizeable chunk of Icelanders’ consumption during Easter travel may well show in April figures. In all, 56,000 Icelanders departed the country via Keflavík Airport in March, a 42% increase relative to the March 2023 total of just under 40,000. Increased card turnover abroad will probably stretch into April, however, as the Easter holidays straddled both months.

Card turnover: a reliable indicator of developments in private consumption

Private consumption downshifted in 2023, after a two-year growth spurt. It actually grew in the first half of the year, only to shrink again in H2, according to preliminary figures from Statistics Iceland (SI). In Q4/2023, it contracted by 2.3%.

Card turnover figures for Q1/2024 also indicate a contraction in private consumption during the quarter. Turnover with Icelandic payment cards used in the domestic market has declined in recent months, apart from February, when it increased by 1.8% in real terms. Turnover abroad has been growing, but not enough to overtake the contraction in domestic card use. These payment card data indicate that high interest rates have put a serious dent in domestic demand and, as such, are delivering the intended results. On the other hand, underlying factors could support domestic demand in the coming term, in spite of high interest rates. In this context, it is worth noting that recent Gallup Consumer Confidence Index measurements show growing consumer optimism. This uptick in sentiment could indicate reduced uncertainty following the newly landed private sector wage agreements, plus the fact that inflation has indeed fallen, albeit more slowly than previously hoped. These factors, together with the possibility of lower interest rates ahead, will presumably bolster private consumption once again later this year. We project that overall private consumption growth will measure around 1% in 2024, and while this is a slight increase relative to 2023, it is sluggish in historical terms.


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Birkir Thor Björnsson