Europe's news in English

COPY LINK

ECONOMY

Denmark’s economy grows via consumption

Newly released data hints that Danes are starting to increase their spending after years of weak consumer demand.

Published: 28 May 2014 16:40 CEST

Denmark's economy grows via consumption

While official data suggests Danes are becoming more willing to part with their money, a chief economist expressed caution that the change might not last. Photo: Colourbox

The Danish economy swung back to growth in the first quarter, bolstered by private consumption and investment, official data showed on Wednesday.

The Danish economy contracted by 0.5 percent in the fourth quarter of last year, when private consumption data was skewed by insurance companies' payouts following two storms.

The country has been plagued by weak consumer demand after a housing bubble burst six years ago.

The 0.9-percent increase in first-quarter economic output reflected "a recovery in industry, commerce and transport," Statistics Denmark said.

"Private consumption, investment and changes in inventories contributed positively to the increase in demand, while public consumption fell," it said.

The government said on Tuesday that "there are many signs that growth is returning" and that it believes growth will reach 1.5 percent this year and 2.0 percent next year.

Handelsbanken chief economist Jes Asmussen cautioned that growth in the first quarter was partly due to a build-up in inventories and because of the insurance payments made in the previous quarter.

"The impression is that there were a few temporary effects that contributed to growth in the first quarter, which may well fade away in the current quarter," he said, according to news agency Ritzau.

Member comments

Log in here to leave a comment.

Become a Member to leave a comment.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

Url copied to clipboard!