Louise Aggerstrøm Hansen,
Chief analyst and private economist at Danske Bank
Danish consumer spending has been on quite the rollercoaster in recent years. From the shutdown of service industries and a massive increase in goods consumption during the pandemic to the reopening euphoria, which was quickly followed by soaring prices and renewed pressure on household finances.
Today, we find ourselves in a situation where personal finances have stabilized for most, and prices are rising more slowly than wages. This is gradually restoring purchasing power for most Danes, though many still have a long way to go.
The increasing purchasing power sets the stage for growing consumption as we look toward 2025. This is supported by sustained high employment levels and a housing market transitioning from being battered by high interest rates to receiving a slight tailwind.
Does this mean we’re heading toward a full-blown spending spree? That’s likely an exaggeration. Many are still in the process of rebuilding savings they had to dip into over the past few years. So, even though a solid real wage increase is expected, it’s unlikely that all of it will translate into spending. Many people now recognize the value of having financial reserves when tough times strike.
In other words, 2025 is shaping up to be characterized by moderate consumer growth, driven by the fact that Danes will have more disposable income. But what will they spend their money on? Currently, we’re seeing a trend toward spending on services at the expense of goods. Concerts, hairdressers, and travel are particularly popular categories right now. On the travel front, the rise in spending is partly due to higher travel costs, but overall, it remains a high priority for Danes, even when finances are tighter than usual.
The outlook for goods, however, is less promising. Is it because we’re turning away from material goods? Perhaps to some extent, we generally observe this trend when living standards rise. But it’s also important to consider where we’re coming from.
During the pandemic, there was a surge in purchasing physical goods – primarily because it was one of the few ways people could spend their money. A significant number of flat-screen TVs, sofas, and refrigerators were sold in 2020 and 2021. And while some may replace their sofas as frequently as others change their socks, for most, these are long-term purchases that last for years. This explains why the sale of durable goods is currently lagging. People simply don’t need to replace items that are only a few years old.
The further we move from the (goods) consumption boom of the pandemic; the more people will reach a point where the items bought back then need to be replaced. This is why we also expect goods consumption to improve slightly in 2025, albeit still sluggishly. Service consumption, on the other hand, is expected to continue its steady growth – something that, except for travel, is generally better for the climate than goods consumption.
Consumption in 2025 will almost certainly see a respectable increase, supported by a solid rise in purchasing power and reduced headwinds from interest rates. Exactly how much it grows will largely depend on how much of the income gains are channeled into savings.
