Nordic Outlook - Denmark: end of the recovery

After a period of relatively high growth and declining unemployment, the upswing appears to be ebbing out, although we do not foresee any impending crisis for the Danish economy.

The global slowdown is visible in Danish economic data, albeit exports remain buoyant overall.

Private consumption and house prices should support growth in the coming years, while the contribution from investment will decline.

Higher cigarette prices are set to lift inflation considerably in the coming years, but underlying price growth remains very modest.

We see Denmark as well prepared for any new crisis that might appear on the horizon, with ample ammunition to counter a crisis in the form of fiscal policy measures.

Soft landing after a six-year upswing

With GDP growth looking set to come in at around 2%, Denmark has outperformed many other European countries in 2019. While Germany has suffered setbacks in the Auto and other industries, Denmark has been buoyed particularly by the pharmaceutical industry, which has experienced phenomenal growth in recent years. Although some of the problems Germany faces appear temporary and growth seems to be recovering slightly, we nevertheless expect that Denmark will be increasingly affected by the slowdown that is unfolding elsewhere. We expect growth to shift down a gear to just under 1.5% in the coming years, which also raises the prospect of slightly higher unemployment. Should our expectations pan out, Denmark will experience a so-called soft landing in the wake of an upswing that has lasted close to six years. There are many previous examples of hard landings, with noticeable downturns in employment, etc., and there is a risk of this happening again, with that risk emanating from abroad. However, we see the risk of a serious crisis in Denmark as lower than during previous slowdowns, as the economy has so far not overheated in terms of credit growth, house prices, competitiveness or inflation. Likewise, there is also a ‘risk' of the upswing returning on the back of stronger consumption and investment growth.

We have yet again seen a major upward revision to the Danish GDP figures; this time with the 2018 figure revised 1.5% higher, meaning that year had the second highest growth rate since 2006. Once again, the activities of Danish companies abroad were underestimated, this time especially construction, which was probably linked to the erection of wind turbines. More of these types of upward revisions are likely in the future, even though Statistics Denmark is working to improve its data collection. For now, though, we have not incorporated any expectations of revisions into our forecast, but instead have used Statistics Denmark's figures as they currently stand, including the growth figures for the first three quarters of 2019. As the revisions are often linked to companies' activities abroad, they typically do not have any great impact on the view of Denmark's domestic economy.

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