Danish consumption growth likely to grow moderately in 2017, 2018 – Danske Bank

Many consumption indicators in Denmark such as retail sales have been comparatively weak in the summer. Therefore, there is little sign of a sharp rise in consumption in the third quarter, even taking into account the down-pull of the fall in car sales in the late August and September because of negotiations.

There are many factors that might underpin a rise in Danish consumption going forward, noted Danske Bank in a research report. Additional people are finding employment, house prices are rising across most of the country, and credit growth continues to be very limited – something that would normally pick up during an economic expansion.

But high consumer sentiment shows that there might be additional credit-financed consumption on the way. Weak consumption growth in recent month serves to highlight that the consumption upswing is less than impressive, with little resemblance to what was seen ten years ago. In all, moderate consumption growth of just under 2 percent is expected in 2017 and 2018, stated Danske Bank. There upside and downside risks to this forecast. A considerable rise in borrowing or increased labor market pressures that leads to higher than expected wage growth would give potential for a more pronounced consumption upswing.

The government presented new proposals for tax reform at the end of August that included a reduction in income taxes for the vast majority of Danes in work. If these proposals are adopted, they could further stimulate private consumption in Denmark in 2018, though the impact would be comparatively limited in 2018. On the contrary, consumption growth might be slowed if house prices started to fall in some of those parts of the country that have added heavily to driving consumption growth, added Danske Bank.