National Bank of Denmark analysis links Denmark’s historically low consumption-to-income ratio to household uncertainty and age-specific retrenchment

The National Bank of Denmark has published an analysis of why Denmark’s private consumption-to-income ratio has fallen sharply since 2019 to a historically low level, despite rising disposable incomes. The study finds that the decline breaks with previously stable relationships between consumption, income, wealth and unemployment, and points to heightened uncertainty and more pessimistic household expectations as key drivers, implying that future consumption will be sensitive to global conditions and how households respond to uncertainty. By end-2025, private consumption was 1.3 per cent above the pre-pandemic end-2019 level, while real disposable household incomes rose significantly more, leaving the consumption ratio almost 7 percentage points lower than in 2019 and stabilised at a low level since Q3 2023. Microdata-based decompositions attribute around a third of the decline to households aged 25-40 and around half to households aged 60 and above, with the latter linked in part to higher retirement ages boosting incomes without a corresponding increase in spending. Changes in income distribution and the rise in property income are assessed to explain only a limited portion of the fall, while the cutback is most pronounced among households with ample liquidity; rising interest expenses from 2022 to 2023 are also associated with larger consumption reductions. Model analysis suggests real-economic developments alone would have implied a broadly unchanged consumption ratio versus 2019, and that adding uncertainty indicators explains only part of the observed drop, consistent with a broader behavioural shift towards precautionary saving amid elevated uncertainty and persistently high perceived inflation.