- Consumer spending could take months to return to pre-crisis levels as surging prices could dampen recovery
Although outstanding credit balances increased only slightly in August, strong demand prevailed for credit to the private sector, which also included spending through credit cards, the data showed.
This is after a strong rebound seen in credit card balances in July, mirroring the boom in short-lived spending after the economy remained open for a full month before lockdowns were reimposed in August.
According to the data, the outstanding credit card balance in the system increased from 134 million rupees in August of July to 121.79 billion rupees after adding more than 3.0 billion rupees to new balances in July after s ” be contracted for two consecutive months during the previous two. month.
Movements in credit card outstanding balances generally provide a proxy for consumer spending, although they remain a proxy for distance in Sri Lanka due to the lower number of people carrying credit cards in their wallets.
Currently, there are only 1.95 million cards for a staff of 8.4 million, reflecting the vast potential available to card issuers and banks.
However, online transactions have grown at an exponential rate during the pandemic, with people subscribing to digital payment platforms linked to their personal and work accounts, which do not necessarily require a credit card.
Meanwhile, ICRA Lanka Limited, in a recent analysis of the average card balance as part of its study of aggregate consumer spending, observed that the latter still remain below their pre-pandemic levels, indicating that consumer demand has not yet returned to its pre-crisis peak.
âAn indirect indicator of consumer spending, the average credit card balance is still below the pre-crisis level. We expect that the demand for services will gradually increase over the next few months, âsaid ICRA Lanka.
According to the data analyzed, a cardholder has an average balance of just under Rs.63,000 in June of this year, up from just over Rs.65,000 in February of last year before the virus hit. hits the country.
“It may take months to see a full recovery in consumer spending,” the rating agency added.
ICRA Lanka also said that lifting the restrictions does not necessarily mean a faster rebound in consumer spending, as there are several other factors such as soaring inflation working in tandem to achieve this.
âBesides the willingness to spend, the ability to spend will also determine how quickly consumer spending will rebound.
Private sector wages initially slowed as employers struggled to stay afloat. The latest data shows that private wages rose on average by more than 7% per month (Y / Y) from May to July of this year, but as the base effect has faded, and it will likely be moderate. Therefore, consumer spending is expected to be moderate in the medium term, âadded ICRA Lanka.