Danish consumption likely to grow modestly in 2016-2017

In the first half of this year, the Danish economic growth was mainly driven by private consumption, which grew 0.7 percent from the second half of 2015. Growth in Danish consumption has been quite widespread, with rises in many subcomponents such as vehicle and housing purchases. Consumption of car increased robustly in 2016, with unit sales setting a new record in the spring; however, sales decelerated in the summer.

But, in DKK terms, consumption of car is around 25 percent down on 2007, as consumers are purchasing smaller vehicles as compared to 10 years ago. Meanwhile, consumption of energy, which varies considerably from quarter to quarter, pulled consumption down in the second quarter.

Many factors show that people in Denmark can afford to increase their consumption, said Dankse Bank in a research note. First, the risk of unemployment has dropped steadily and employment has been continuously increasing in recent years. Secondly, wage growth is outpacing inflation and thereby increasing purchasing power than might translate into more consumption. Furthermore, low interest rates and rising home equity are providing Danish people more economic space to move, added Danske Bank.

Nonetheless, recovery in consumption is far from impressive currently. Growth in consumption came in quite low at 0.2 percent in the second quarter, whereas preliminary indicators for the third quarters have also been unsuccessful in indicating any marked growth in the summer.

The hesitancy in Denmark to increase consumption might be because of several reasons, such as uncertainty regarding the outlook for global growth after Brexit. Furthermore, several Danes are using their additional income to lower their debts rather than spending on consumption.

In all, consumption is expected to grow along with rising incomes in Denmark. Therefore, there is little prospect of a debt-driven consumption boom that was seen in the mid-2000s, as consumption appears set to expand just modestly in the forecast period, according to Dankse Bank.