Foreign tourists provide the backbone of card turnover growth

The figures break down as follows: Turnover with domestically issued cards totalled just under ISK 82bn, a contraction of 4% YoY in real terms. Turnover with foreign cards totalled ISK 22bn, however, giving a real increase of 41% YoY. As before, growth in April was kept aloft by foreign card use. The surge is attributable primarily to base effects due to lower tourist numbers in 2022 than in 2023 to date, as the pandemic continued to dampen tourism well into 2022. Some 142,000 tourists visited Iceland this April, up from just over 102,000 the previous April.

As we have discussed recently, 561,000 tourists came to Iceland in the first four months of 2023, a YoY increase of 63%. At ÍSB Research, we project that 2.1 million travellers will make their way to Iceland this year; therefore, foreign card use can be expected to keep growing in the near term but then taper off further ahead.

Private consumption growth set to ease

After surging in early 2022, payment card turnover slowed markedly in H2, in tandem with rising inflation and interest rates. It spiked again early this year, when new wage agreements took effect, providing a large segment of the private sector with hefty wage rises and retroactive adjustments in pay. The private sector workers in question received as much as a three-month pay hike in a lump-sum payment, which certainly helped fan the flames of card turnover in Q1. The figures for April suggest that this surge could now be abating. Public sector workers, too, have recently landed wage agreements providing for similar pay increases, albeit not retroactive.

Payment card turnover gives a reliable indication of where private consumption is headed in the near future. Based on the turnover data for 2023 to date, it is likely that private consumption growth took a jump in Q1, after having eased in H2/2022. The April figures showing weaker card turnover growth imply that private consumption growth will slow down in Q2. But of course, the next few months will give a clearer picture of developments during the quarter. Other economic indicators also signal an upcoming slowdown in private consumption growth. For instance, the Gallup Consumer Confidence Index plunged in April, hitting its lowest value since November 2020. In 2022, private consumption grew at its fastest rate since 2005, but the outlook is for far more sluggish growth in 2023. In our macroeconomic forecast from February, we projected that private consumption would grow by 2.5% in 2023, as higher interest rates, weak real wage growth, and an ambiguous economic outlook are set to affect consumers’ saving and consumption to an increasing degree.