Danish economic growth remains on strong ground, economy likely to grow 2.5 pct in 2017

Denmark’s economic upturn continues to be on strong ground. The Danish economy grew 0.6 percent sequentially in the second quarter. Public spending mainly drove the economic growth, as private consumption took a pause following an impressive two quarters and goods exports stayed the same for the second consecutive quarter.

Exports were driven mainly by shipping in the second quarter, as the large Danish merchant fleet has been recording positive trend in world trade. Growth driven primarily by public spending does not sound sustainable, noted Danske Bank. In the recent year, the growth scenario is strong though. Private consumption and exports look solid and investments have been picking up as well.

But, investments have been mainly driven by housing. On the contrary, business investments have stayed at a low level. For the upswing to remain on track in the long term, business investments need to increase, stated Danske Bank. Meanwhile, employment growth is unlikely to remain the growth driver forever. Additional investments should aid in labor productivity.

Given the second quarter growth figure, the 2.5 percent print is starting to seem achievable for this year as a whole. Consumers have stayed confident over the summer and real wages are still rising, although less than in 2016. Also, there is room for some credit-driven private demand, as credit growth continues to be low. Growth in the most important Danish export markets continue to remain strong. Exports contribute over 50 percent to the economic growth.

The government presented its budget proposal for the next year and it suggests a small tightening of the fiscal policy of 0.1 percent of GDP. But fiscal tightening is appropriate in the current situation, with growth considerably above the long-run potential and an output gap that is set to close next year, stated Danske Bank.

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