Weak foreign demand remains main obstacle for higher growth in Danish economy

Denmark's economy expanded 0.2% q/q in Q4, almost on par with forecast. For the entire 2015, the economy grew 1.2%, slightly higher than the long term potential growth rate. However, there is still enough room for a longer period of higher growth due to a negative output gap. Household consumption expanded 0.2% q/q, while gross capital spending grew 0.9%, which was mainly driven by a major pickup in machinery investments.

Furthermore, net export positively contributed to the overall GDP as exports grew 0.1%, whereas imports declined 0.2%. But, a weak foreign demand continues to be a major headwind for a significantly higher growth in the Danish economy. Export in 2015 dropped 0.9%, the worst performance since 2009. Meanwhile, inventories subtracted 0.1 percentage points from the GDP.

The Danish economy is likely to grow at a higher growth rate in the coming years. The growth is likely to be driven by higher private consumption because of low interest rate level, higher disposable income and higher employment. Meanwhile, export is also likely to recover due to higher global trade. However, the threat to the export outlook is on the downside and a continued weakness in export is the largest overall threat the ongoing rebound in the Danish economy in the coming years.

"In total we expect Danish GDP to increase by a little less than 1.5% in 2016 and up to around 2.0% in 2017", says Nordea Bank.